ACCOUNTING SYSTEM AND PERFORMANCE OF SMALL SCALE ENTERPRISES (A STUDY OF SELECTED ENTERPRISES IN THREE SENATORIAL DISTRICTS IN AKWA IBOM STATE)

ACCOUNTING SYSTEM AND PERFORMANCE OF SMALL SCALE ENTERPRISES (A STUDY OF SELECTED ENTERPRISES IN THREE SENATORIAL DISTRICTS IN AKWA IBOM STATE)

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Every business firms exits to produce goods and services and make the products available to their customers. The process of production and marketing of the products involves series of activities such as rising of capital recruitment and training of staff, purchase of raw material, inventory management, and advertising, transportation, warehousing and sales. These activities generate different sets of data and information.

Management and other interested persons use such data and information in making decisions. Therefore a well designed structure and procedure must be put in place to identify record, analyze, interpret and communicate such data or information to the users. The structure and procedure established in an organization to record, analyze, interpret and communicate information rising from business transactions constitute accounting system. Accounting system according to Ama (2004) is a formal system for identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating accounting information about a particular entity to a given group of persons.

The main focus of an accounting system is to provide relevant financial information on the resources of a business and the effects of the use of these resources. Such information is needed by management for making decisions which affects the performance of the business. The implication here is that accounting system influence the business performance of business enterprise (small and medium scale enterprises inclusive).

The work was carried out to examine how accounting system affects the performance of small and medium scale enterprises in Akwa Ibom State. The choice of this topic was informed by the observed lapse in accounting system in small and medium scale enterprises and the attendant poor performance of these enterprises in Nigeria as a whole.

1.2     Statement of the Problem

The small and medium scale enterprises are the major elements of economic development and growth. Researchers have confirmed that most advanced countries of the world built their foundation on small and medium scale enterprises. Today, small and medium scale enterprises still play significant role in Japan, Germany, Europe and the United States of America. But in Nigeria as a whole and in Akwa Ibom State in particular, a good number of small and medium scale enterprises nearly survived beyond the first two years of operations.

Although many scholars and researchers including Robins (2004), Lekwot (2005) and Peters (2006) have conducted studies on the performance of small and medium scale enterprises, they have not been able to establish a link between accounting system and the performance of these firms. Rather, their major focus was on lack of capital, poor management and harsh operational environment as the key factors affecting the performance of small and medium scale enterprises. It should be observed that enterprises (like other business organizations) adopt different accounting system to record their transactions.

However, the issue is whether there is adequate, consistent, reliable and conformity with professional and regulatory provisions and standard. If so, are the enterprises able to make effective use of the information generated through these accounting systems in making sound business decisions capable of improving their performance? What are the factors influencing the choice of accounting systems in the small and medium scale enterprises? These issues among others form the bases of this study.

1.3     Objectives of the Study

This study was carried out to;

1. Find out types of accounting system used in small and medium scale enterprises in Akwa Ibom State.
2. Determine the factors affecting the choice of accounting systems in small and medium scale enterprises in Akwa Ibom State.
3. Assess the provisional and regulatory provisions and standards in respect of small and medium scale enterprises accounting systems.
4. Establish the influence of accounting system on sales and profits declared by the small and medium scale enterprises in Akwa Ibom State.

1.4     Research Questions

In this work, the following research questions were applied;

1. What are the types of accounting system use in small and medium scale enterprises in Akwa Ibom State?
2. What are the factors affecting the choice of accounting system in small and medium scale enterprises in Akwa Ibom State?
3. What are the professional and regulatory standards set out for small and medium scale enterprises accounting system in Nigeria.
4. Has accounting system any influence on the performance of small and medium scale enterprises in Akwa Ibom State?

1.5     Research Hypothesis