THE RELEVANCE OF ACCOUNTING SYSTEM TO SMALL SCALE ENTERPRISES

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THE RELEVANCE OF ACCOUNTING SYSTEM TO SMALL SCALE ENTERPRISES

CHAPTER ONE: INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In Nigeria, small scale business constitutes a significant portion of the total economy. In most cases, these businesses are owned by one man (sole proprietorship) while in other cases, about two or more people pull resources together to form their own business.

One major problem encountered by these businesses is often lack of adequate fund to run the businesses profitably. Thus, major of such business establishment lack the resources to employ an accounting staff to keep the accounting record of the business.

Again, it is a common knowledge that most sole proprietors because of their deficient educational background don’t believe in employing somebody to keep records of business transactions, they prefer to be their own managers as well as projected records maintained by competent hand. From the records available, it can reliably be said that one out of every twenty small scale establishments spreading all over Nigeria have a functional system of accounting.

On this understanding therefore, a project of this nature must attempt the possibility of installation of a system of accounting in such business within limit of human and resources available.

1.2 STATEMENT OF THE PROBLEMS

In business transactions, every successful enterprise must always be moving forward; it must expand and strive to survive in a competitive environment. In pursuance of these objectives, the business must always be informed on the basic decision being undertaken in the course of the business.

An accounting system is to an organization, is what a steering is to a car or what a paddle is to a canoe. Whoever appreciates the importance of the steering or a paddle will appreciate the essence of a good accounting system. Available statistics have revealed that most small businesses have failed to inadequate system of accounting which will record and process the result of operations.

Accounting is said to be the language of business, it is considered so in the view of the information role it plays in many organizations. An approximately designed system of accounting will ensure that basic information that the management needs for business decision making is made available. Through the system of the management is able to know the procedures to be followed in the performance of business routine functions while report statement on previous performance enables management to evaluate the effectiveness of the system and serve as a basis for decision making.

1.3 OBJECTIVES OF THE STUDY

The main purpose of this study is to provide adequate knowledge and understanding of the way in which accounting system in a small industry is being established and to encourage investors on the basis of proper organization of the basis principal of the system.

The study is mainly designed for corner stone block manufacturing industry Lagos. For setting up an accounting system of the firm and to aid the proprietor and his staff in proper and effectiveness of the accounting transactions and also to know steps and ways to be undertaken for accounting system. The significance of accounting system is based on sound accounting principles and practices of any establishment cannot be overlooked.

This study will help in the dissemination of information which will be useful in controlling operation. The control operations basically refer to the system of internal control. For any accounting system to be effective, various departments to be instituted to monitor operations e.g. the stores department must be properly organized in any manufacturing industry, materials,

pilferage, theft, deformation and obsolesce invariably lead to reduced profit or increases loses. Another important department is cost accounting department which is responsible for recording particulars of requisitions and prices for material. These requisitions received from the store keeper must be checked against the shop practices in requisition books or count foils to ensure that none is missing. This department concerns with the income and expenditure of the business.

1.4 NEED FOR THE STUDY

Included in the importance of accounting system design is the use that the accounting department will be put to. This department makes use of the information provided by the cost department as regards the cost of the completed and uncompleted goods. And subsequently, use this to draw the income statement of the firm concerned. The financial accounting department will open a cost ledger control account in which will be recorded all items of expenditure and income which effects the cost accounts. In abridged version, the study is to ensure that adequate control is placed on cost so that the objectives of the establishment will be attained, the study is carried out in order to institute the accounting system in small scale business based on the available statistics, that majority of small scale business don’t keep accounting records.

1.5 ASSUMPTIONS

The assumption of the relevant accounting system to small scale industry. This research work is based on the following assumptions:

Small scale industry can have a sound accounting system for the purpose of recording and processing of the result of the operations

Small scale industry can grow and develop

Accounting system can lead to the development of small scale industries.

1.6 SCOPE OF THE STUDY

The scope of this study is designing accounting system for a small scale industry. Meanwhile, emphasis will be based on installation and establishment of the system designed and particular references to the production and more so, the control over materials available for use.

The scope will cover the basic principle, techniques and method of achieving desired in a co-operate objectives and systems in which are employed in a business to ensure proper planning judicious control and effective utilization of both human and material resources.

1.7 LIMITATIONS OF THE STUDY

Although the study was pursued with every possible capacity possessed but there are some limitation factors that stood as a stumbling block forward the perfect actualization of the objective of the study which are explained below:

TIME CONSTRAINT: The time required by the project is not given to it, since the available time was shared between the research work, and normal classroom, also, the time required to make any necessary research is not given to the project.

FINANCE CONSTRAINT: There were materials lackage due to the fact that the business had not been keeping complete records and this ultimately resulted to inadequate data due to increase in the depth of the study.

CO-OPERATION CONSTRAINT: There were little help rendered by the management of the industry where this project was carried out and no enough data given concerning system of operations, transaction, section, profit forecast and other areas of concern.

1.8 DEFINITION OF TERMS

Accounting system: This is an ordered set of principles for recording business transactions in an organized and efficient manner, safe guarding assets and service as far as possible the accuracy and completeness of records.

Accounting: Is the process of identifying and communicating economic information to permit informed judgment by the users of the information.

Assets: These are the properties belonging to the business in other word; they are the claims for the business concerned. Example, land and buildings.

Book keeping: Is the art of recording enterprise transactions in the books of the enterprise accounting record.

Capital: This refers to money voted for the purpose of running the affairs of any business unit. This is usually the money contributed by the owners of the business.

Ledger: This is the principal book of account for recording transactions under taken in the course of business.

Net Worth of the business: Or assets value is the total assets less the total liabilities to outsides.

Over Head: These are expanses that are spent on activities not directly related to a production of a particular product.

Returns: These are materials that are either sent out or sent back into an organization for the reasons that call for it.

Re-order Level: Is that maximum level of stock at which a new order will be initiated and it is derived from the rate of wage of the materials and the delivery delay.

Working Capital Fund: is the amount of current in excess of current liabilities which represents a margin of safety for current creditors.

Work in Progress: The name given to materials that are undergoing production before the output is finally obtained.

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