Table of Contents
Abstract. 2
CHAPTER ONE. 5
INTRODUCTION.. 5
1.1 Background of the Study. 5
1.2 Statement of the Problem.. 7
1.3 Purpose of the Study. 9
1.4 Significance of the Study. 10
1.5 Research Questions. 12
1.6 Null Hypotheses. 12
1.7 Delimitation of the Study. 13
CHAPTER TWO.. 15
REVIEW OF RELATED LITERATURE. 15
2.1 Theoretical Framework. 15
2.1.1 Accounting Theory. 15
2.1.2 Bureaucratic Management Theory– Max Weber (1864 - 1920). 18
2.1.3 Fund Theory. 19
2.1.4 Administrative Management Theory. 20
2.2 Conceptual Framework. 21
2.2.1 Concept of Accounting. 21
2.2.2 Concept of Medium Scale Enterprise. 23
2.2.3 Concepts of Funds. 25
2.2.4 Concept of Generally Accepted Accounting Principles. 26
2.2.5 Concept of Management. 28
2.2.6 Cash Flow Statements and Management of Medium Scale Enterprises. 30
2.2.7 Statement of Profit or Loss Account and Management of Medium Scale Enterprises. 34
2.2.8 Statement of Source and Application of Funds and Management of Medium Scale Enterprises 37
2.2.9 Statements of Financial Position and Management of Medium Scale Enterprises. 44
2.2.10 Valued Added Statements and Management of Medium Scale Enterprises. 48
2.3 Review of Related Empirical Studies. 54
2.4 Summary of Related Literature. 58
Chapter Three. 60
Research Methodology. 60
3.1 Research Design. 60
3.2 Population of the Study. 60
3.3 Sample Size and Sampling Technique. 61
3.4 Data Collection Methods. 61
3.5 Validity and Reliability of the Instrument. 62
3.6 Data Analysis Techniques. 63
3.7 Ethical Considerations. 63
3.8 Limitations of the Study. 64
CHAPTER FOUR. 66
DATA ANALYSIS AND INTERPRETATION.. 66
4.1 Preamble. 66
4.2 Socio-Demographic Characteristics of Respondents. 66
Source: field survey, 2024.. 67
TABLES BASED ON RESEARCH QUESTIONS. 69
4.3 Analysis of the Respondents’ Views on Research Question one:. 69
Discussion of findings. 90
CHAPTER FIVE. 94
SUMMARY CONCLUSION AND RECOMMENDATIONS. 94
5.1 Summary. 94
5.2 Conclusion. 95
5.3 Recommendations. 96
REFERENCES. 98
Research Questionnaire. 111
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Accounting serves as the foundation for providing financial information to owners, enabling them to make critical economic decisions necessary for the success of any profit-making organization. According to Rommey and Steinbart (2012), accounting involves the recording, classifying, interpreting, communicating, and summarizing of financial transactions in monetary terms, with the aim of reporting the results to management and other stakeholders for decision-making purposes. An accountant, as defined by Pandey (2005), is an individual specialized in bookkeeping and preparing financial accounts, competent in analyzing a business's financial statements. This means that the responsibility of handling financial reports largely falls into the hands of accountants and other qualified accounting personnel.
In the context of medium-scale enterprises, financial statements are considered fundamental for effective management. Zhou (2010) highlights that medium-scale enterprises, like any other type of business, require financial statements as the core financial accounting information. These enterprises engage in various economic activities involving the exchange of cash and other financial documents for goods and services, all in pursuit of profit. Aremu and Adeyemi (2011) point out that financial statements are essential records containing valuable financial information for these enterprises.
Financial statements are not just records; they are the cornerstone for evaluating the performance of any enterprise, as noted by Ogbonnaya (2005). They are vital for achieving organizational goals, encompassing the process of raising funds and their prudent management. Libby, Libby, and Short (2000) emphasize that financial statements of medium-scale enterprises provide the necessary information for effective decision-making.
Financial information is crucial for understanding how organizations operate. It plays a key role in the planning and control of enterprises to achieve their objectives. The main purpose of preparing financial statements is to keep business owners informed about their enterprise's current financial performance and condition. These statements are also used by banks, creditors, customers, suppliers, and business partners, who rely on them to make informed decisions.
The primary means of conveying financial information to stakeholders is through financial statements, which encompass statements of financial position, profit or loss accounts, cash flow statements, funds flow statements, and statements of changes in financial position, as noted by Kieso and Weygandt (2002).
In essence, financial statements serve as a communication tool, providing users with insights into a business's profitability and solvency. They offer a comprehensive view of the financial position and performance of an enterprise. For medium-scale enterprises, these financial documents are indispensable for management decisions and essential for achieving their objectives.
Medium-scale enterprises are typically managed by specialized and trained executive officers or managers. The utilization of financial statements is of paramount importance for both management and owners when making informed decisions to ensure the enterprise's continued operation and effectiveness.
In summary, financial statements are essential financial documents that facilitate decision-making and effective management, especially for medium-scale enterprises that meet specific criteria for being profit-oriented organizations. These statements offer valuable insights into the financial performance and condition of an enterprise, enabling rational decisions and sustainable operations.
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1.2 Statement of the Problem
Many profit-oriented businesses operate without proper financial accounting records, which hampers effective decision-making within these enterprises. The failure to maintain well-established financial regulations and financial transactions often leads to significant challenges. Without proper financial records, the preparation of financial statements, which are vital in decision-making, becomes nearly impossible.
A common problem faced by medium-scale enterprises is the inability to afford the services of qualified bookkeepers and accountants due to financial constraints, as highlighted by Akpakpan (2002). Many business owners and managers are unable to implement even basic bookkeeping systems to record financial transactions, as mentioned by Osuala (2004). This lack of proper financial record-keeping is a frequent cause of business failures and results in indecision and confusion. Financial impropriety, embezzlement, misappropriation, and fraud often occur in the absence of accurate records of economic transactions.
Due to the improper maintenance of records according to fundamental accounting principles, most medium-scale enterprises do not have financial statements. As a result, managers and other users of financial information struggle to understand the actual trading activities of the enterprise. Inadequate and improper disclosure of financial information on statements and accounting records can lead to serious issues for users of financial data.
In the researcher's observation, some accountants and managers in medium-scale enterprises fail to effectively utilize financial statements when making decisions related to low profit margins. The lack of proper financial record-keeping often results in inaccurate decision-making that is detrimental to the enterprise. Managers, owners, and accountants may struggle to interpret transactions and data, leading to perpetual setbacks and difficulties in providing accurate financial information. This issue significantly contributes to the failure to use sound financial reports within the enterprise, posing serious problems for users of financial information.
Given these challenges, the study aims to investigate the utilization of financial documents such as cash flow statements, profit or loss accounts, sources and application of funds statements, financial position statements, and value-added statements in medium-scale enterprises in Warri Metropolis. The objective is to understand their relationship with effective management within these enterprises.
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1.3 Purpose of the Study
The main purpose of this study was to determine the relationship between utilisation of financial statements and management of medium scale enterprises in Warri Metropolis of Delta State. Specifically, this study sought to determine:
- the relationship between cash flow statement and the management of medium scale enterprises in Warri Metropolis.
- the relationship betweenstatement of profit or Loss Account and the management of medium scale enterprise in Warri Metropolis.
- the relationship between statement of sources and application of funds and the management of medium scale enterprises in Warri Metropolis.
- the relationship between statement of financial positionand the management of medium scale enterprises in Warri Metropolis.
- the relationship between value added statement and the management of medium scale enterprises in Warri Metropolis.
1.4 Significance of the Study
The findings of this study on utilisation of financial statements and management of medium scale enterprises would be beneficial to the managers, government, users of financial statements, accountants, and students.
The findings of this study served as a source of information to the owner of business organisation for assessing the extent to which financial statements are utilized for planning and evaluating the financial strength of the enterprise or corporations. The findings of this study would be served as input to the government, business associates, while comparing current and past results of financial performance and overall financial success of corporation.It is hoped that the findings of this study would be of enormous benefit to the users of financial information both internal and external parties to the enterprises.
The findings of this study would be of immense importance to the managers of medium scale enterprises in a number of ways in their day-to-day running of the enterprise. It is also hoped that the findings of this study would be of great use to managers of enterprises of all typesin planning and to take useful economic decisions to enhance growth and sustainability.
The findings of this study would be advantageous to professional accountants and private accountants for their proper use in elucidating financial reports of the enterprise. It is hoped that the findings would assist them utilise these statements to compare and measure the enterprise’s financial strength and profitability performance at a particular point in time. The findings would assist accountants to budget for short-term and long-term cash receipts and disbursement of funds on fixed assets of the enterprise. The findings of this study would also help accounting personnel to prepare each financial statements according to the prescribed Generally Accepted Accounting Principles (GAAP).
The findings of this study would benefit the managers of the enterprise to evaluate the level of management capability on the best way to utilize all the resources of the enterprise to ensure success. It is also hoped that the findings of this study would be of great benefit to business associates and business operators to embark on training and retraining of the accounting officers, book keepers, accounting clerks, through seminars, symposia, workshops, and conferences in order to acquire skills, and update their knowledge in financial accounting.
The students in tertiary institutions and secondary schools would benefit greatly from the finding of this study in that, it wouldstimulate more interest in learning of accounting. It is also hoped that the findings of this study wouldform the basis for conducting further research studies on financial statements. Finally, the findings of the study would benefit small size enterprises, private firms, and public limited company’s administrators, if the findings are well utilised.
1.5 Research Questions
The following research questions were raised for this study:
- What is the relationship between cash flow statement and the management of medium scale enterprises in Warri Metropolis?
- What is the relationship between statement of profit and Loss Account and the management of medium scale enterprises in the study area?
- What is the relationship between statement of sources and application of funds and the management of medium scale enterprises in the study area?
- What is the relationship between statements of financial position and the management of medium scale enterprises in the study area?
- What is the relationship between value added statement and the management of medium scale enterprises in the study area?
1.6 Null Hypotheses
Five null hypotheses were tested at 0.05 level of significance.
Ho1: There is no significant relationship between the cash flow statement and the management of medium scale enterprises in Warri Metropolis.
Ho2: There is no significant relationship between the statement of profit or Loss Account and the management of medium scale enterprises in Warri Metropolis.
Ho3: There is no significant relationship between the statement of sources and application of funds and the management of medium scale enterprises in Warri Metropolis.
Ho4: There is no significant relationship between the statements of financial position and the management of medium scale enterprises in Warri Metropolis.
Ho5: There is no significant relationship between the value added statement and the management of medium scale enterprises in Warri Metropolis.
1.7 Delimitation of the Study
This study was delimited to the utilisation of financial statements and management of medium scale enterprises in Warri Metropolis. Only the operators of medium scale enterprises were covered in thisstudy. The study was focused on the following variables: Cash flows statements, statement of profit or Loss Account, statement of sources and application of funds, statement of financial position and value added statement. The collection of data would be restricted to the use of researcher structured questionnaire to collect data from the respondents.
