A Study of an Accounting System in

Selected Small and Medium Enterprises

in Benue State

1
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Research Questions
1.5 Statement of the Hypotheses
1.6 Significance of the study
1.7 Scope of the Study
1.8 Limitations of the study
References

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Introduction
2.2 The world of small and medium enterprise.
2.3 Management process in small and medium enterprises.
2.4 Accounting and Financial record of small and medium business.
2.5 Depreciation and inventory Valuation in small and medium
enterprise.
2.6 Profit Planning and Cost Control in Small and medium Enterprise
2.7 Insurance and risk Management in Small and Medium Enterprise
2.8 Accounting /Financial Problems in Small and Medium Enterprise
2.9 Relevance of accounting information
2.10 Conclusion
References

CHAPTER THREE: METHODOLOGY

3.1 Introduction
3.2 Research Design
3.3 Population of the study

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3.4 Sample size determination
3.5 Sources of data collection
3.5.1 Primary Data
3.5.2 Secondary Data
3.6 Methods of Data collection
3.7 Data presentation and Analysis Technique
3.8 Justification of Methodology
3.9 Weakness of Methodology
3.10 Conclusion
References

CHAPTER FOUR: DATA PRESENTATION AND ANALYSES

4.1 Introduction
4.2 Data presentation
4.3 Data Analysis
4.4 Test of hypotheses
4.5 Conclusion
References

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATION.
5.1 Introduction
5.2 Summary of Finding
5.3 Conclusion
5.4 Recommendation
5.5 Suggestion for further study
Bibliography
Appendices

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 CHAPTER ONE:

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Accounting has been described as a means whereby business

owners and mangers can “figure out where they have been, where they

are going, and possibly how to go where they want to go” (Baumback,

1983 P.235).

Accounting system can be define as records , procedures and

equipment that routinely deal with the events affecting the financial

performance and position of the organization, (Horngren & Foster, 1975).

Accounting like many other disciples and fields of study have been

looked at variously by different scholars and academics. In form of

definition. However, disparities in definition do not necessarily evolve

common agreeing grounds for scholars and academics. Scholars define

accounting differently but still agree on which ‘record’ can be deemed to

be an accounting entry. In defining accounting, most scholars have

looked at the intent and nature of records. Generally accepted accounting

principles (GAAP) stipulates that an accounting entry must be financial in

nature, meant to communicate and interpret economic information

Accounting as an activity plays a constantly expanding role in modern

business. Right from times, man has always been a curious being always

to know certain phenomena and commit them to memory (Biblically)

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perhaps the greatest reason why man ate the forbidden fruit was to satisfy

his curiosity.

Accounting primarily satisfies the curiosity of users of such

accounting information in order to permit informed judgement by such

users (helmikamp et al; 1986) posit that the purpose of accounting is to

provide decision makers with useful information about economic activities;

hence accounting is often called the “Language of business”.

Business is regard as the highway of the socio-economic system in

any country. Pride et al (1993) define business as the organized efforts of

individuals in a society to produce and sell at a profit the basic needs of that

society.

The history of the evaluation of accounting goes hand in hand with the

history of business.

Business as an economic activity developed gradually and uses

heightened during the industrial revolution in the 17th century. The

evolution of huge industries entailed the use of large resources (human,

material, and financial resources). In spite of the fact that three resources

were usually emptied (i.e. human financial and material resources)

investors were far from being satisfied because every thing was at the

best of management of such business organizations.

Hence the need for fourth resources informational resources was

diagnosed and the concept for stewardship reporting was emphasized in

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those times to present data. Hence accounting developed to serve the

needs of business.

Various reasons can be adduced for the evolution of small and medium

enterprise business in the world of business and such reason includes capital

constraints and personal preference

The phrase “sole proprietorship” immediately conjures up an image of

a “small and medium business”. There is one distinct feature of a sole

proprietorship business; it is highly personalized and owned by one

person and is usually unincorporated.

Various attempts have been made to define what a small and medium

business is; it has been defined in terms of the following: employment, asset

value; and money sales volume

All have proven unsatisfactory in some respect because of diverse nature

of industries characteristically; a small and median business is one that is

actively managed by its owner, Highly personalized, largely in its area of

operation, largely dependent on internal sources of capital to finance its

growth.

Except for the nature of ownership (in terms of number of owners) the

characteristics of a small business are similar to that of medium term

enterprise: hence medium terms enterprises that depict those features and

have small operating size will be regarded as small enterprises (business).

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 The medium term enterprises/business is the one that gives rise to

most its problems special needs and dictates its accounting system.

1.2 Statement of the Problem

Recent studies on small and medium scale enterprises in Benue

State have appeared to show more problem than solution to owners. This

is due to poor management as a result of inadequate record keeping. More

than half of the failed businesses within this category which have been

attributed to poor management have their remote cause in lack of

adequate and detailed accounting systems practices to support effective

decision making by the managers.

Lack/inadequate proper accounting system and financial record

keeping in the business concern makes it impossible for managers to

know how their enterprises are functioning and in majority of cases, the

first indication that something is wrong comes too late, failure is already

upon them.

Due to the above reasons, the researcher intends to conduct a study

on the accounting systems in the small and medium scale industry.

1.3 Objectives of the Study

The main objective of the research is to study the accounting systems

of selected small and medium scale enterprises in Benue state precisely the

research attempts to:

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 1. Find out if the accounting system of small and medium scale

enterprises is important for their survival.

1.4 Research Question

The researcher in order to properly study the accounting systems of

the selected small and medium scale enterprises has the developed the

following research question:

1. Are the types of accounting systems of small and medium scale

enterprises important for their survival?

1.5 Statement of the Hypothesis

To answer the research question, the researcher has formulated the

following hypothesis for testing:

H0- The accounting systems of small and medium scale enterprises

are not important for their survival.

H1- The accounting systems of small and medium scale enterprises are

Important for their survival.

1.6 Significance of the Study

The importance of the study is emphasized in the fact, that at the

end of the study, the findings and conclusions made will positively affect

the business owners/managers in the following ways:

1. This study will serve as an insight to business/managers owners in

management that is in proper used of accounting system and services

in order to achieve its objectives.

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 2. It will enlighten business owners/managers in Benue state on the

study of accounting system on their business performance.

3. It will further serve as a reference material to those who might

want to know more about accounting system or, may be interested

in similar study.

1.7 Scope of the Study

The intension of this study is to find out the accounting system of

selected small and medium enterprises in Benue state and how accounting

information of such selected enterprises has help in management

performance.

1.8 Limitations of the Study

The limitations of this study or research is due to the limited time

constraint, the insufficient of resources that could enable the researcher

go to the most advanced level for data collection and information, however,

there is hope that, information, observation and recommendations made at

the end of this work will be applicable to accounting system of small and

medium enterprises in the state.

9
 REFERENCES

Baumback, C.M., (1983). Basic Small Management. Price Hall Incorp,

New Jersey.

Ejiofor P. (1989) Foundations of Business Administration. African

Publishers Ltd. Onitsha.

Millichamp A.A (1987) Auditing: An Instructional Manual for

Accounting Students. DP Publication Ltd. Hants.

Egbu, C (1983) Record Keeping in Small Scale Business: An Instrument

for Survival. Business Times. Lagos. PP: 18

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Introduction

One of the most important functional areas of business

management is managing the firms’ finances; this area presents a problem

for many small and medium enterprises in Benue state however, because

the managerial strengths of the business owners usually lie in the areas of

production and marketing rather than in paperwork and financial details,

their ventures often lack basic financial managements needed to guide a

business to greater heights. The basic financial management include the

keeping of proper accounting system and financial records as they related

to debtors creditors; Depreciation, inventory valuation, profit planning

and cost control and business financial condition and direction and

making wise investment decisions. An in-depth understanding of those

areas outlined is important to business owners it will usually be wise for

them to do so, it will certainly be necessary to keep sales and purchase

records for the purpose of VAT (Value Added Tax) authorities also it will

be necessary for some form of calculation of profit to be prepared for the

in land revenue income tax purposes. If a business produces few or no

accounting records the tax authorities would likely make a guess about

the tax to be paid by the owners.

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 It is note difficult to imagine in whose favor their guess will tend to

err! These reasons underline the importance of accounting system in

addition; the system of keeping accounting records adds a useful

discipline and order to trading life. It provides information to allow more

sensible decisions to be made and enable predictions of shortage cash or

explanations of the degree of success of a business. It is also much easier

to detect inefficiency, waste or pilferage of stock of cash if there are

accounting records.

More generally, the owner will probably be interested to see how

well the business is performing, where the profits went, what assets are

owned; and so on.

Accounting system are designed to illustrate these matters,

developing accounting entries is important to the owners also us actively

engaged in business and business owners effects his accounting entries-in

cases where he is effecting the entries himself/herself the way he wants

them, considering his own understanding as a factor and it is to this end that

this section of the research study is directed.

To review studies and sources bordering on finance records on

their influences in business owner (s) it is pertinent to note that

accounting records discussed in this review are those that are based on

fundamental to the business owner (s) of business organization (small and

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medium enterprises) and the records of companies are in no way

emphasized.

2.2 The World of Small and Medium Enterprises

Entrepreneurs are energizers who take risks provide jobs, introduce

innovations and spark economic growth although some writers restrict the

term entrepreneur to be founders of business firms in this survey, the

definitions used is broader and includes all active owner, manager and

encompasses second-generation members of family owned firms owner-

managers who buy out founder/owner of existing firms. However, for the

purpose of this study, the definition simplify into three basic categories,

profit, independence or parties/ otherwise a satisfy life-style.

Profit

The financial return of any business must compensate its owner for

investing his/her personal time ad personal savings before any true profits

are realized. The profit incentive is a more powerful motivator for some

entrepreneurs than for others. However, there are also those for whom

profit is primarily a way of keeping score such entrepreneurs may spend

their profit on themselves or give it way. But most are satisfies unless

they make what they consider to be a reasonable profit.

Independence/Partners or otherwise

As earlier stated, individuals are pulled toward. Entrepreneurship

by a number of factors, one of such factors in the strong desire to be

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independent. Perhaps the most distinguishing characteristics of a small

and medium enterprises measure of independence that the business owner

(s) enjoys.

A satisfying Life-Style

Business owner (s) who earnestly want to be independent or in

partners in the business environment, own business and be actively

involved jointly in the management process live satisfying life-styles

through the process of innovations.

Clifford Baumback submits small owner management business

enterprises are more innovation than are large publicly held corporate

enterprises because people working on new ideas that relate to their own

profit are motivate in a more direct way business owners pioneering a

new idea naturally does not have a product or services of proven demand

and the difficulties and challenges faced in stimulating a proven market and

process of proving the worth of innovations all add life and vitality to

business management process.

2.3 Management Process in Small and Medium Enterprises

In terms of the functions that must be performed, managing a small

and medium enterprise is no different from managing a large company.

However, these functions are performed in an environment that creates

different demands and provides different opportunities for business owner

(s) these include:

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Planning: planning is the manager’s decision-making function requiring the

ability to select from alternative courses of action. It involves determine the

firms objectives and the methods (policies and strategies) that will be used

to achieve them.

Innovations: if the business owners do not stop now and then take the

long view of his operation, it will soon cease to be a dynamic, progressive

business owner (s) must evaluate his/her concern and consider how well

it is fulfilling its original purpose. What are the things that could be done

differently? What are the things that could be done better?

Organizing and Staffing

Organization is the first step in the implementation of business

plans and goal. This management function involves classifying and

dividing the work or activities of business into manageable units. Like

planning, the organizing function must be performed continuously

because business and economic conditions are constantly changing

staffing on the order hand involves finding the right persons for the right

jobs.

Delegation of Authority

Most business owner (s) who is well established grow to a stage

where delegation of authority is emphasized. But for the small time

business owner delegation of authority involves the assignment of tasks

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to subordinate employees, which have been ordinary performed by the

business owner himself.

Directing/Monitoring

Directing is the function of supervising and coordinating the

activities of subordinate individuals and is the logical sequel to

organization coordinating is required because all members of a firm

perform interrelates functions. Similarly, supervision is important

because it acts as a means of communicating of ideas and instructions.

Controlling

Controlling means measuring and correcting plans for the business

are fulfilled. It involves: Settling standard or objectives, Maintaining

current operating records, Acting promptly when operation deviate too

much from goals established.

2.4 Accounting and Financial Records of Small and Medium

Enterprises

Any experienced business owners knows that it is just common sense

to keep an accurate written record of every business transaction. The

lack of proper accounting record keeping in the business concern makes it

impossible for managers to know how their enterprises is functioning.

An adequate financial record keeping will either provide the required

information or assist the owners in obtaining answers to

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questions as they relate to the following details. Details of expenses and

incomes previous year, Trends of incomes and expenditure as compared

to other businesses, Strategies on how to cut down in desirable expenses

recorded in previous year, Details of asserts, liabilities and networth,

Amount actually invested in the business and the rate of profit being earned

on investment, Rates of profits after taxes, Size of inventory, Current

value of physical assets, Details of cash held, Details of debtors and

creditors.

The Accounting Equation

Assets are anything of value that the business owns such as cash in

hand or at hand, merchandise accounts (and note) receivable and building

land and equipment, liabilities on the other hand represent the chains of

creditors against the assets of the business, such as account (and note)

payable and accumulated wages and taxes: in other words, what the

business owns. The difference between what the business owns (assets) and

what is owes (liabilities is net worth of the business, or the owner’s equity

or capital in business. From these definitions, it follows that assets must

always equal liabilities plus net worth. This is known as the accounting

equation and is the frame work on. Which firm’s basic financial records are

set up

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Hence:

Assets = Liabilities + Capital

From the accounting equation, it is seen that any increase (or

decrease) in assets must result in a corresponding decrease in liabilities or

net worth this is because in every business transaction there is an

exchange of one thing for another.

This gives rise to the concept of double entry book keeping in

which every transaction is recorded as a debit entry in one account and as

a credit entry in another.

Assets (on the left side of the accounting equations) typically have

a debit balance. Liabilities and net worth on the right side of the accounting

equation. Normally have credit balance. Any account of course may be

debited or credited depending on whether the account is increase or

decreased in value by that transaction (cash purchase, for example would

decrease cash assets account, requiring a credit entry in that account). At

any point in time the net worth (or capital) account represent the original

investment profit or accumulated loses; thus expenses (representing a

decrease in capital) are normally ‘debit’ and income accounts (representing

an increase in capital) are normally credited.

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 Expenses Account
Dr Cr

Increase Decrease

Income Account
Dr Cr
Decrease Increase
Assets Account
Dr Cr
Increase Decrease

Liabilities Account
Dr Cr
Decrease Increase

Basic Accounting and Financial Records

For tax purpose and or the maintenance of an adequate system of

financial control, there must be a written record of every business

transaction; he/she has the choice to keep as any records as possible or as

few as possible. Taking this fact into consideration it would be pertinent

to state that this research effort concentrates on the basic/fundamental

records.

1. Cash from sales, collection and other sources (owners would

prepare daily cash report as a supplement to or perhaps in lieu of cash

receipts journal).

2. Cash disbursements journal: this book is just like cash receipts

journal. The different is that unlike the cash receipts journal, it

gives details of all outgoing cash. (This journal is maintained in

19
 addition to the information provide by the stubs of the business

owners check book).

Date Particular/Description Post Cash Sales Account Either

(cr)
Deported Taxs Amount Name
Recurrent a/c
Monthly total cr

3. General Journal: is a book containing detailed daily listening of all

other (Non cash) financial transaction such as credit sales and

purchases depreciation and closing entries.

4. General ledger –to which are posted, monthly the above or

quantity, the individual or summary entries from the above

journals. (This ledger provides the basic for he firms financial

statement).

5. Profit and loss statement –the profit and loss statement is an

account that shows details of transactions as they relate to whether

the business has made a gain or loss. The main aim is to arrive at

the net profit which is the excess of sales over cost of goods sold

gives the gross profit. when the cost of goods sold is higher than

the gross profit and loss account of owner. Please note that other

business because of their own nature of transaction may have

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 different entries as regard the expenses but the flow given below is

the standard

Profit and Loss Account Format

N N

Sales x

Less cost of sales

Opening stock x

Add Purchase x

Add carriage inwards x

x
Less return out ward (x)

Cost of goods available for sale x

Less Closing Stock (x)

Cost of goods sold x

Gross profit xx

Less expenses

Salaries and wages x

Electricity bill x

Insurance and telephone x

Heating and x

Depreciation x xx
Net profit xx

6. Balance sheet: the balance sheet is not an account the balance sheet

is a financial record that shows the position of business at a

21
 particular time. It is analogous to a person’s picture taking at a

particular time. And which depicts his postures as of the time the

snap should occurred. Thus the balance sheet does not reflect the

position of the business at all time but only at the date it was prepared

conventionally. It is prepared at the end of an accounting year. It

shows details of equity (owners’ equity), liabilities and assets.

Flow of Balance Sheet

Capital and liabilities Assets

N N N N
Capital x Fixed Assets x
Net Profit x x Plant and machinery
Less drawings Motor Vehicle x x
x
x Current assets
Long term liabilities x Stock x
Current liabilities x Debtors x
Cash/Bank x x
xx
Xx

Among the basic accounting records are other books of prime or original

entry viz:-

7. Sales day books –the purchases day book that record all credit sales

of the business in a day.

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 8. Purchase day book –this records credit purchases

9. Return outward book –this is a book that records details of good

return to business ventures by customers

10.Return inward book –this is a book that records all goods return by

the business to suppliers.

11. Cash book –perhaps this is the most widely used book in any small

and medium enterprises it records details of all cash acquisition and

disbursement the cash book may be: one column cash book –which

take down details of cash transaction only.

Two column cash book –which reflect the bank transaction as well

and three columns –in addition to bank transaction includes discounts

allowed and receiver respectively.

2.5 Depreciation and Inventory Valuation in Small and Medium

Enterprises

In calculations a business taxable income (or that of the small and

medium enterprises in the case with business owners each year the

accountant may deduct as a depreciation expenses a reasonable allowance

for the wear and tear, or obsolescence of firms capital assets, and the

amortization of certain intangible assets.

Valuing the item in firm’s inventory is also a major factor in the

measurement of taxable income. The adopting of ground depreciation and

inventory valuation polices of prime importance to the management (or

23
the owner) of a small and medium business particularly so in the case of

small scale business

Depreciating Capital Assets

Depreciation in accounting since is simply allocating the cost of an

assets changing a portion of this cost to each year of its estimated services

life or cost recovery period. Depreciation is an expense of the business

just as much as rent, utilities or salaries

Method of Depreciation: Straight line method, Reducing balance method,

Machine hour method, Sum of the years digit method, Accelerated cost

recovery system, Double declining balance method, reducing balance

method.

1. Straight line method: the straight line method assumes that

depreciation is a function of time rather use; the asset is seen as

providing an equal amount of services in each year, with

maintenance cost either constant or insignificant. The depreciation

expenses appropriate to each year is given by; original cost -

salvage value useful life. The salvage value referred to the residual

value of the assets at the end of its useful life in years.

2. Machine hours method this give the depreciation figure per

machine hour. Under the method, the depreciation expenses is

given by: cost-salvage values estimated life in machine hour.

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3. Reducing balance method: the reducing balance method applies a

depreciation rate to the book value of the asset at the beginning of

each period; the result is that as the book value declines each year,

the depreciation to be changed is ascertained by means of the

formula:

R= (n-n/s/c) x 100%

Where ‘r’ = is the rate of depression, () is the salvage value, ‘c’ is the

original cost and ‘n’ the number of years. Assuming a salvage value

of N50, original cost of N1050 and useful life five years, rate of

depreciation will be given by

R = (1-5 √50/1050) x 100 = (1= 0.554) x 100

= 44.6%

The depreciation rate is then charged on the declining balance of each

year.

4. Sum of the year’s digit method: the sum of the year digit method,

is similar in effect to the declining as reducing balance method, is

easier to calculate. The years of assets life are the digits which are

totaled. The relationship of the year (digit to the total provides the

proportion of the net cost to be treated as depreciation, the digits been

arranged in descending order to ensure the higher depreciation

in the earlier year in our assumed value:

Year Depreciation Depreciation (Year)

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 5 5/15 5/15 x 100 = 333

4 4/15 4/15 x 100 = 267

2 3/15 3/15 x 100 = 200

15 2/12 2/15 x 100 =133

1/15 1/15 x 100 = 67

15/15 100

Thus

Year Original Cost Year Depreciation Book Values

1 1050 333 333 717

2 1050 267 600 450

3 1050 200 800 25

4 1050 133 933 117

5 1050 67 1000 50

5. Double declining balance method: using the double declining

balance method of depreciation, the cost of the assets is allocated

over the five year period of its estimated service life by double

percentage to the under precaution balance existing at the start of

each year. No salvage value is used in calculating the annual write

of. It is to be role however that the remaining book value

approaches but never reach zero.

Accelerated Cost Recovery System (ACRS)

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 This method was introduce by us congress in 1981 for the purpose

of new capital investment the accelerated cost recovery system differs

from the other method in one important respect; the period of time over

which an assets must be depreciated i.es its cost recovery period is much

less than the assets useful or service life. Under ACRS tangible property

that is placed in service is depreciated over a 3 years 5 years -10 years -15

years recovery period, depending on the type of property it is.

Revaluation Method

Under this method, the assets of the firm are revalued at the end of

the accounting period or account year of the enterprises (firm) it is

interesting to note that under this method, revaluation of assets value may

lead to appreciation and not necessarily depreciated where the assets has

a salvage value the remaining value or book value approximates the

salvage value. See us iks publications 534 for detail about ACRS see also

Baunback (3) p.341 – 344.

Inventory Valuation

Inventory valuation is important to the business owners because it

will give the owner first hand knowledge of his market situation.

Method of Inventory valuation

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 There are various method of inventory valuation but this study will

concentrated on the three most common method used in simple business

organization like (small and medium enterprises)

1. First in First Out (FIFO): This method is based on the assumption

that the stocks acquired first will be first to be sold for example if a

firm acquires 10 units of stocks at N3 each and 6 identical units of

N4 each, and later sells 12 units the result will be:

Purchase Sales (at cost) Stock

10 (a) N 3 = 30 10 (a) N 3 = 30 4 (a) N = 16
6 (a) N 4 = 24 2 (a) N 4 = 8
16 = 54 12 = 38

The 12 unit sold will have cost N38 and the stock remaining will

be 4 unit and value (a) N16.

2. Last in First out (LIFO)

The last in first out system of stock valuation assumes that the first

to be sold. Few proponents of the LIFO system consider that this

represents the physical flow of goods, but they do consider that LIFO

achieves the objectives of matching the most currently available cost

with present revenues using the Illustration above.

Purchase Sales (a) Cost Stock

10(a)N3 = 30 6(a) N3 = 18 34 = 12

6(a) N4 = 24 6(a) N 4 = 24 4 = 12

6 = 54 12 = 42

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 This 12 unit will have cost N42 (as opposed N38 under FIFO) and

the stock remaining will be valued at N12.

3. Weighed Average

One way around the problem of changing prices is to avoid it, and

this is the purpose of the weighed average system. Generally, average

costs are neutral both in respect of income measurement and

balance sheet valuation. All stock acquired during a given period

at whatever price is reduced to a single representative average

cost. Using the figures on illustration above.

Purchase sales
10(a) N3 = 30 12(a) 54/4 = N40.5
6(a) N4 = 24 Stock
16 = N54 (cost) 4(a) N54/16 = N3.50

The 12 units sold will have cost N40.5 stock remaining will valued at

N3.50

2.6 profit Planning and Cost Control in Small and Medium

Enterprises.

Profit is the motivating force in business. A business is successful

only to the degree that make a profit, that is to the degree that is continues

to serve its customer so satisfactorily that they continue to support it as an

enterprise. Profit may be described as that part of income which is left

29
over for the business owner after the goods are paid for and bill is net. It

is the business owners pay off profit, however should not be left to

enhance, they should be planed for; cost control and profit planning are

interrelated in a sense that student cost control measures gives rise to high

profits.

Demand Forecasting

An essential element is profit planning and cost. The demand forecast

is particularly important in the budgeting to operating expenses, labor and

materials needs and other costs that vary with volume the most common

forecasting procedures is to assume first that sales in the industry will

grow at approximately the same percentage rate as in the past or in

proportion to gross national product (GNP) taking into account in up and

downs of the business cycle –and then to estimate the firm is advertising

and sales promotion strategies. On the basic of these two estimates, perform

a financial statements are not better than the estimates on which they are

based. Business owners can improve demand forecasting by subscribing to

trade journals in their locality and cooperating with business neighbours

Expense Budgeting

Just as business firms in a given industry may differ in items in

their operating efficiency. Many small –scale owner (s) can increase their

profit margins by more care planning and control in their operating

expenses.

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 An expenses budget is control device by management to

predetermine what each major class of expense should be for the period

of times covered and to aid the business owner to conduct the business in

line with these expenses as planned.

Operating Ratio

Operating ratios are used in expenses control; profit and each item

of expenses in the profit and loss statement are expressed as a percentage

of sales income example.

Note Amount percentage %

Sales 200, 000 100

Less Cost of goods sold 140, 000 70

Gross Margin 60, 000 30

Less expenses (itemized) 40, 000 20

Net profit 20, 000 10

Operating expense include all cost of doing business except the cost of

goods sold an excessive operating cost can be easily seen with use of

these percentages. (3)

2.7 Insurance and Risk Management in Small and Medium

Enterprises

Insurance in simple terms refers to the covering of risk with

insurance companies business owners can ensure their business from the

31
following risks burglary. Fire, crime, employee dishonest, shoplifting,

bad cheque losses, working hazards natural desistance etc. eg flood.

It is however pertinent to note that some of these risks are not endurable

in Benue as well as Nigeria but insurable in the U.S (United State) and

other countries.

Risk Management

Risk management consists of all effort designed to preserve the assets

and earning power of a business since risk management has grown out of

insurance management, the two terms are used interchangeably actually,

risk management has a much broader meaning covering both insurance and

insurance management and including non-insurance approaches to reducing

all types of riskss.

Risk management in a small and medium differs from risk

management in a large firm. In large ways for one things insurance

companies are not always eager to insure small and medium firm and

may even turn them down in some cases also in large firm them down in

some cases also in large firm the responsibilities of risk management are

frequently assigned to a specialized state manager in contrast, the

manager of small and medium business is usually its risk manager.

Preventive Risk Management

Preventive risk management can take place in the following way

see Longeselker etal .

32
2.8 Accounting/Financial Reporting Problems in Small and Medium

Enterprises

Accounting/financial reporting problems in small and medium

enterprises can be categorized into: Technical problems and Non-

technical problems.

Technical problems are those associated with proper recording of

financial transaction of the business while non-technical problems are

those that are some what external. To the business men environment.

Technical Problems

1. Identification of transaction and classification into their relevant

books of accounts.

2. Measurement of economic activities that is to say the preparation

of final accountants like income statements.

3. The problems of incomplete records most business owners because

of their basic knowledge on technicalities of accounting entries

often find it difficult to prepare accounts and is availably end up

preparing incomplete records.

Non-Technical Problems

In trying to effect entries, the business owners also encounters

some technical problems which includes

33
1. Constraints by regulatory frame work: this become a problem to

the business owners only to the extent of his/her willingness to

conform to reporting regulations.

2. Medium of expression/communication barriers as regards English

language.

3. The master’s voice where owners hire accountants and still go

ahead to dictate the way and manner of accounting records

4. General low level of information technology.

5. Unethical conduct that is fraudulent tendencies.

6. Inadequate equipment/stationary.

2.9 Relevance of accounting information.

The relevance of accounting information to business owners include

1. Provision of general information: accounting information serve. Its

primary role as record keeping process for the memory function to

the owners.

2. It support operation management and decision making process.

3. Prediction and forecasts by the owner can be base on the

availability of financial reports that are detailed.

4. Bank loans and income tax purpose can be adequately net with

accounting record.

5. Business planning and control can only be effective of their exist

paper accounting records in business.

34
 6. Business valuations are also base on accounting information.

7. Sale figures, profit and losses are usually revealed by financial

reports. This makes the owner to have an insight on his existing

market situations and to plan for innovation as the case may be.

2.10 Conclusion

This review has look at the subject matter of accounting system as it relates

to small and medium enterprises. In this chapter, efforts have been made

to limit discussions to the financial activities of the small and medium

scale business.

Accounting has been described as the language of business and

businesses owner (s) needs accounting information as much as any form

of business information.

The relevance of account information to business was emphasized

about 3600 be when trade boomed between media cities and the Middle

East influenced by economic change and paciolis publication of summa,

according have involved to present stage.

The management of small and medium enterprises/business is

much the same in terms of techniques like the management of an

incorporated company, however, the difference exists on the decision

making environment there is more flexibility in former.

35
The business owner (s) basic and fundamental books include the journal,

cash book; cash receipt book, cash disbursement book, general ledger,

among other book, help the (s) to have an insight into the financial

position of his business/enterprises.

Inventory valuation, profit planning, cost control and risk

management are activities which the business owners should embark on

to ensure higher efficiency and performance in market vis-à-vis

competition with other firms.

Accounting information is very relevant to business owners

because it tell them “where they have been, where they want to go and how

to go”

Accounting as an activity has many problems for the owners

technical problems relate to confronting with general accepted accounting

principles (GAAP) and other regulation whenever the owner chosen to

(unsolicited) conform to reporting standards.

On the whole, accounting/financial reports have an impact on small and

medium scales business in Benue state and the patterns to business

owners all divergent due to no strong binding regulation on business owners

the prescription and comparison of these different system benchmarks the

purpose of this study.

36
 References

Jamuar, R.S, etal, (1992), Small Scale and Cottage Industry in India:

Problems, Government Policy and Measures for Development” Deep and

Deep Publications New Delhi

Little. I DID, (1987) “Small Manufacturing Enterprise”. A

Comparative Analysis of India and other Developing Economics, A

World Bank Research Publication. Washington. DC.

Capeland, R.M and PE Dascher, (1978). Management Accounting John

Wiley and Sons Incorp. New York

Baumnack, C.M (1983) Basic Small Management Prime Hall Incorp,

New Jersey.

Anderson D. (1987) Small Industry in Developing Countries: A

Discussion of issues World Development 10 (11): 913-94

Akinbinu, A. (2003) “Industrial Reorganization for Innovation:

Current Knowledge on Small and Medium Enterprises Clusters in

Western Nigeria NISER Monograph Series No Nigeria Institution of Social

and Economic Research, Ibadan

Asaolie, T.O & Nassar. M.L (2007) “Essential of Management

Accounting & Financial Management” Cedar Production Nigeria.

37
 Ajose. S (2010) SMEs and the Tough Terrain of Business Personal

Finance and Entrepreneurship. Publication of the Nation News Papers. Vol.

5 No 1547 October 13, p.38

Calcopietro, C.M and Salaam. M>D (1999) “Small and Medium Scale

Enterprisess Policy Proposal”

Chenery H etal (1974) Redistribution with Growth Offord: Offord

University press.

CHAPTER THREE

3.1 INTRODUCTION

The purpose of this research work is to find out the accounting

systems in small and medium scale industry in Benue State and to make a

recommendation on the appropriate accounting system for such

organization to enhance their smooth operations and profitability. This

chapter outlines the methodology used in obtaining information and

materials for carrying out the research work. It also covers the

determination of population and sample size used in for research study

and also a justification of methodology used in obtaining relevant

38
information used in accessing if the accounting system of small and

medium enterprises are important for their survival.

3.2 Research design

The research design is in two folds, it is also a correlation design

consisting of a selected groups of SMEs owners/managers in Benue State

as participants, and two, it is simple random selection of business, though

from the three zones of Benue State (zones A, B, and C) this study used

conditional analysis through direct observations, questionnaires and

existing records.

3.3 population of the study

The target of population in this study is some selected small and

medium enterprises in Benue state in respect of the first objective of the

study which is to find out the accounting system of small and medium

enterprises in the state.

3.4 sample size determination

The sample size for the sake of this research is forty-five (45). This

has determined haphazardly by the researcher as reasonably large enough

to yield reliable results for the achievement of the objectives of the research

work.

3.5 Sources of Data Collection

In order to obtain data for the research work, primary and

secondary sources of data were used

39
3.5.1 Primary Data

Data obtained under this category were facts collected at first hand.

Questionnaires were administered randomly to respondents. Personal

observations were made and used in data presentation. In addition, oral

interviews of some of the population were also carried out. The oral

interviews were necessary in order to get confirmation of answers

supplied in the questionnaires. The oral interviews also complemented the

information obtained through the questionnaires and also cited in the

clarification of responses that were not clearly understood when the

questionnaires were analyzed.

3.5.2 Secondary Data

These sources provided information at second hand (i.e. already

made materials) Data collected under this category are mainly from

books, journals, magazines and bulletins. These book journals were

obtained from diverse sources like Benue State University library and

were used for the literature review.

3.6 Methods of Data Collection

In the course of this research survey, three major methods were

adopted for obtaining vital information that was important for assessing the

accounting system used by SMEs in Benue state.

These methods were the administering of questionnaires, interview

and observations. The questionnaires were used to determine the views of

40
sole proprietors concerning their accounting records and entries, which they

considered to be significant thus, the questionnaires become the study’s

basic survey instrument. The interview questions were based on the purpose

of the study.

The questionnaires sought information on the following: The nature of

accounting systems of sole proprietors under survey, details of records kept

by firms under study relating to finance, nature of business operations,

depreciation and inventory valuation methods, cash flow profit planning

and insurance/risk management, relevance and problems of accountings

information.

These questions were simple and consisted of ten (10) questions.

Those were designed to avoid bias, misrepresentation and to ensure

unambiguous answers,

The question is of one type: Close ended question

3.7 Data Presentation and Analysis Technique

The data processing used in this research is the simple ratio. This

simple ratio is used to indicate ratios for the purposes of comparison to

the whole group for the case of mathematical manipulations,

multiplication and division purpose, percentages were used to analyze

results. And also the percentage procedure of data analysis was employed

in the processing presentation and analysis of data. This was presented in

the form of tables. In its simplest form, a percentage refers to the rate,

41
number or amount in each hundreds. This implies that, it is a proportion

of a part or part a total. It could be expressed as follows:

Percentage = number X 100

Total 1

It is expressed as a percentage and denoted by ‘%’ the percentage

techniques of data presentation and analysis was considered to be the

most appropriate for the final presentation of data collected for the

research word in order to enhance a simple, and straight forward analysis

of data collected and also to enable an accurate interpretation of the result

in a more statistical manner.

3.8 Justification of Methodology

The methodology chosen by researcher was necessary in order to

save time and cost and also to ensure the easy understanding of questions

which were invade as simple as possible to elicit correct responses from

respondents, the oral interviews were necessary so as to aid the researcher

to get confirmation of answers supplied in the questionnaires. The oral

interview also complemented the information obtain through the

questionnaires and also aided in the clarification of respondents that were

not early understood when the questionnaires were analyzed.

The cluster sampling method was also chosen from various sampling

techniques; and was in order to make sampling easier and

42
reduce the cost sampling since the research population covered the entire

state

3.9 Weakness of Methodology

In the course of this study, the researcher was faced with certain

weakness which includes: insufficient time and financial constraints as it

are quite expensive to surf the net for relevant materials and point them

accordingly and also find it quite difficult due to some financial or

inadequate finance to travel to some places for more data collection. This

above attributed to the weakness of methodology.

3.10 Conclusion

This chapter has looked at the methodology employed in the

Execution of this survey research. The research design is a non-

experimental design that uses comparative techniques of data analysis;

also the research approach is analytic and comparative. Participants in

this survey are a selected group of sole proprietors in Benue state while

the instrumentation comprised of well developed questionnaires,

observation technique and data comparison (observations)

Techniques both primary and secondary data have been explored.

The procedure for data analysis is the percentage and ratio procedure so

as to understand comparisons to the whole set of existing research concepts.

43
 The justification of this methodology (i.e mainly in the fact that the

data analysis techniques and procedure for administration are in such a

manner that reasonable and valid conclusion can be drawn.

The weakness of methodology include window dressing by

business owners and a reluctance to divulge ‘secret’ documents for fear

of competitions; the remedying techniques employed by the researcher

was increase efforts in data collection to reduce the effects and

implication of this envisaged reluctance on the part of business owners.

References

Agburu J.I (2001). Modern Research Methodology. The Solid printing

and Publishing co; Makurdi.
Akpa, A. and Angahar (1999). Essentials of Research Methodology.
Aboki publishers; Makurdi.
Asika N. (2004). Research methodology : A process approach.
Mukugamu and brothers enterprise, Lagos.

44
 CHAPTER 4

DATA PRESENTATION AND ANALYSIS

4.1 Introduction

This chapter attempts to present, analyze and

interprets data collected from both primary and secondary

sources by the use of questionnaires and other techniques.

The data presentation is tabulated, showing the analysis of

respondents and the contingency table from result are

computed.

The data analysis attempts to summarize the

information gathered in a way that provides answer to the

hypothesis. For the purpose of drawing conclusion and thus

making recommendations.

4.2 Data Presentation

Data collected by the means of questionnaires have been

carefully summarized and tabulated. This is to enable easy

comprehension and analysis. The data as presented in the

form of simple tables are as below.

45
Table 4.2.1: Nature of the organization studied.

Responses No Percentages (%)

Service 17 38%
Whole sale 5 11%
Retail 19 42%
Others 4 9%
Total 45 100%
Sources: Questionnaires

Table 4.2.2 How long has the organization been running?

Responses Number Percentage (%)

0-10 25 56%
11-20 9 20%
21-30 7 15%
31 and above 4 9%
Total 45 100%
Source: Questionnaires

Table 4.2.3: Does your organization have any particular

system of accounting?

Responses Number Percentages (%)

Yes 41 91%
No 4 9%

46
Total 45 100%
Source Questionnaires

Table 4.2.4: What method of record keeping does your firm

maintain?

Responses Number Percentage (%)

Manual 45 100%
Computerize Nil
Combination of the Nil
two
Total 45 100%

4.2.5: Does your business maintain books of account?

Responses Number Percentage (%)

Yes 45 100%
No Nil
Total 45 100%

4.2.6: Your firm has policies on depreciation and inventory

valuation.

Responses Number Percentages (%)

Agree 39 87%
Disagree 6 13%
Total 45 100%

47
4.2.7: Your organization always prepare end of the year

final accounts.

Responses Number Percentage (%)

Agree 25 56%
Disagree 20 44%
Total 45 100%

4.2.8: Accounting information is vital for decision making in

your organization.

Responses Number Percentage (%)

Agree 45 100%
Disagree Nil
Total 45 100%

4.2.9: Do you really view accounting information as having

a significant impact on business growth?

Responses Number Percentages(%)

Strongly agree 11 24%

Agree 21 47%

Disagree 9 20%

Strongly disagree 4 9%

Total 45 100%

48
4.2.10: The accounting system of small and medium scale

enterprises are import for their survival.

Responses No Percentage (%)

Strongly 28 62%
Agree 16 36%
Disagree 1 2%
Strongly disagree Nil
Total 45 100%
Source: Questionnaires

4.3 Data Analysis

Table 4.2.1 shows that out of the 45 organizations

studied, 38% are service organizations, 11% are whole sale

firms, and 42% belongs to retail firms and 9% others.

Table 4.2.2.The table showed the numbers of years

that the firm has been in operation. 56% have been in

operation between 0-10 years, 20% have been in operation

between 11-20 years, 15% have been in operation between

21-30 years, and 9% have been in operation between 31

years and above.

Table 4.2.3. The table seeks to find out on the

particular accounting system. The table indicates that 91%

of the firm has their own particular accounting system while

9% does not.

49
 Table 4.2.4.The data in table 4.2.4 relates to

information/record keeping of the firm study; and the result

shows that 100% of the firm studies keep records of their

transaction manually.

Table 4.2.5. This table shows whether the firm maintains

books of account or not; and the result shows that the

entire firm under the study maintains book of account.

Table 4.2.6. Seeks to find out whether the firm has

policies on depreciation and inventory valuation, and the

result shows that 87% agree while 13% disagree.

Table 4.2.7. The result of this table 4.2.7 shows that

out of the 45 organization study, 56% agree that they

always prepare end of the year final account while 44%

disagree.

Table 4.2.8. The table presents the relevance of

accounting information in decision making in organization

and 100% agree to this relevance of accounting information

in decision making in an organization and non disagree.

Table 4.2.9.The table views accounting information as

having, a significant impact on business growth and out of

45 business study, 100% of respondent agreed really that

50
accounting information have a significant impact on

business growth.

Table 4.2.10. The table presents the accounting system

of small and medium scale enterprises as a vital/important

for their survival; 62% strongly agreed, 36% agreed, 2%

disagreed, and none strongly disagree.

4.4 Test of Hypothesis

HO: The accounting systems of small and medium scale

enterprises are not important for the survival.

HI: The accounting systems of small and medium scale

enterprises are important for their survival.

Tables 4.2.9 and 4.2.10 will be used to test this

hypothesis.

Table 4.4.1 Observed frequency (FO)

Responses Table Table 4.2.10 Total

4.2.9
Strongly agree 11 28 39%
Agree 21 16 37%
Disagree 9 1 10%
Strongly disagree 4 0 4%
Total 45 45 90%

Computation of expected frequency (fe)

51
fe = RXK

Where R= Row Total

K= Column Total

N= Grand Total

fe= Expected Frequency

fe= 45x39
90 =19.5

= 45 x 37
90 =18.5

= 45 x 10
90 =5

= 45 x 4
90 =2

Fe= 45 x 39
90 =19.5

= 45 x 37
90 =18.5

= 45 x 10
90 =5

= 45 x 4
90 =2

Table 4.4.2 computation of chi-square

S/NO Fo Fe Fo-Fe (Fo-Fe)2 (Fo-

Fe)2/fe

52
1 11 19.5 -8.5 72.25 3.71

2 21 18.5 2.5 6.25 0.34

3 9 5 4 16 3.2

4 4 2 2 4 2.0

5 28 19.5 8.5 72.25 3.71

6 16 18.5 -2.5 6.25 0.34

7 1 5 -4 16 3.2

8 0 2 -2 4 2.0

Total 90 90 0 X2=18.5

Degree of freedom (df) = (c-1) (r-1)

= (2-1) (4-1)

=1x3

=3.

The computed value of chi-square (x2) is 18.5, while

the critical value at 5% significance level and degree of

freedom at 3 is 7.815.

According to the decision rule, if the computed value of x2c

is greater than the critical value of x2t, we reject the null

hypothesis (H0) and accept the alternative hypothesis (H1). If

otherwise, then accept the null hypothesis (H0) and reject

the alternative hypothesis.

53
Since the computed value (x2c=18.5) is greater than the

tabulated value (x2t=7.815), the null hypothesis is rejected

and the alternative hypothesis accepted. The researcher

therefore concludes that the accounting systems of small

and medium scale enterprises are important for their survival.

4.5. Presentation and Interpretation of Results.

The data has been presented using simple tables and

analyzed using simple percentages for ease of

understanding.

The research hypothesis have been tested using chi-

square, following the decision which states that the null (H0)

should be rejected if the computed value of chi-square (x2e)

is greater than the tabulated value (x2t).The null hypothesis

has been rejected and the alternative hypothesis accepted.

This is the computed chi-square (x2c) is 18.5 and the tabulated

chi-square (x2t), is 7.815.

From the result, the researcher rejects the null

hypothesis that the accounting systems of small and

medium scale enterprises is not important for their survival

and accept the alternate hypothesis that the accounting

54
systems of small and medium scale enterprises are

important for their survival.

4.6 Conclusion

From the results above, the researcher therefore

concludes that the accounting systems of small and

medium scale enterprises are important for their survival.

Reference

Baumback, C.M., (1983). Basic Small Management. Price Hall Incorp,

New Jersey.

Ejiofor P. (1989) Foundations of Business Administration. African

Publishers Ltd. Onitsha.

Millichamp A.A (1987) Auditing: An Instructional Manual for

Accounting Students. DP Publication Ltd. Hants.
Jamuar, R.S, etal, (1992), Small Scale and Cottage Industry in India:

Problems, Government Policy and Measures for Development” Deep and

Deep Publications New Delhi

Little. I DID, (1987) “Small Manufacturing Enterprise”. A

Comparative Analysis of India and other Developing Economics, A

World Bank Research Publication. Washington. DC.

Capeland, R.M and PE Dascher, (1978). Management Accounting John

Wiley and Sons Incorp. New York

55
 CHAPTER FIVE

SUMMARY, CONCLUSION, RECOMMENDATION

5.1 Summary

This chapter presents a summary of the entirely research work.

The first chapters give the background of the study, statement of the

problem, objectives of the study, research questions and statement of the

hypotheses, significance of the study, scope of the study and limitations

of the study.

Chapter two started with a comprehensive review of well-known

literature, which has relevance to the problem being studied the chapter

examined the world of SMEs, management process in SMEs, accounting

and financial record of SMEs, depreciation and inventory valuation in

SMEs, profit planning and cost control in SMES, and insurance and risk

management in SMEs, accounting/financial problems in SMEs and brief

conclusion was used to crown it up.

Chapter three unfolds the methodology of the study it highlights

the research design population of the study sample size determination,

source of data collection, primary data, secondary data and methods o0f

data collection presentation and analysis technique, justification of

method weakness of methodology and also the conclusion was given.

Chapter four presents and analyses all the data collected from both

primary and secondary sources in order to provide answers to research

56
questions and also test the validity of the research hypotheses. Decisions

were taken and conclusions made.

Chapter five (i.e. the final chapter) sums up and summarizes of the

whole work and draws conclusions and at the end makes some work and

draws conclusions and at the end makes some work able suggestion and

recommendations.

5.2 Conclusion

Based on the finding of the study, the following conclusions were

made:

 As a result of the simplicity of single entry accounting system,

SMEs are more inclined to adopt single entry accounting

system.

 Due to inadequate record keeping, the SMEs operators could

not assess their performances effectively

 There is a correlation between proper record keeping and

profitability of SMEs .

 To enhance the profitability of SMEs and their continuity, there

is need for adequate record keeping which will help the owners

to keep track of the performance of theses enterprises.

57
5.3 Recommendation

Based on the finding made and conclusions drawn from the sudy,

the following recommendations were made.

 since there were many accounting systems available to SMEs,

the ministry of commerce and industries should help the small

and medium owners to avoid themselves the opportunity to use

the accounting system that are relevant for the day to day

reporting of their business transaction.

 The use of single entry system has many limitations that

outweigh its advantages of simplicity, thus, the small and medium

enterprise should be encouraged by the ministry of commerce

and industries to make use of other accounting systems available

in their business.

 Since keeping proper account enhances profitability of small

and medium enterprises, there is need for Benue state government

to invite Nigerian institute of chartered accountants to organize

seminars for small and medium scale owners for better

management and profitability of their business.

58
5.4 Suggestion for further Study

The researcher give room to other student, individual or organization

who are interested in seeking ways to improve and create better accounting

system of SMEs in Benue state to conduct further research into this

study using other method and larger variables than the researcher was able

to use due to the limitation of the study in chapter one (1.8) this is because

all enterprises should continuously seek to improve their accounting system

in order to enhance/increase their effectiveness and efficiency in

management and to increase profitability and this can only be achieved

through continuous research.

59
 Benue State University
Faculty of Management Science
Accounting Department

Dear Respondent
Request to help fill a questionnaire. I am a final year student of
accounting department of the above named institution working on a
research project title a study of an accounting system in selected small
and medium enterprises in Benue State.
Please, you are to help provide objective answers as possible and to the best

of your knowledge of the above name topic. Your responses are strictly for

academic purpose and will be treated as such with absolute c

60
Questionnaire

1. What is the nature of your organization?

i. Service
ii. Wholesale
iii. Retail
iv. Others

2. How long have the organization been running?

i. 1-10
ii. 11-20
iii. 21-30
iv. 31-Above

3. Does your organization have any particular system of

accounting?
Yes [ ] No [ ]

4. What method of record keeping does your organization

maintain?
i. Manual book keeping
ii. Computerized book keeping
iii. Combination of the two.

5. Is there any policy on depreciation and inventory

valuation in your organization?
Yes [ ] No [ ]

61
6. What are the books of account maintained by your
firm?
i. Source documents
ii. Day books
iii. Cash book
iv. Journal
v. Ledger(s)

7. Your organization always prepare end of the year final

accounts
Agree [ ] Disagree [ ]

8. Accounting information is vital for decision making in

your organization
Agree [ ] Disagree [ ]

9. Do you really view accounting information as having a

significant impact on business growth?
Strongly agree [ ] Agree [ ] Disagree [ ] Strongly
disagree [ ].

10. The accounting system of small and medium

scale organizations is important for their survival.
Strongly agree [ ] Agree [ ] Disagree [ ] Strongly
disagree [ ].

62