Abstract
This study examined the accounting practices of SMEs as
well as the challenges they face and the effect of these challenges on SMEs in
Makurdi Metropolis – Benue State – Nigeria. A Survey research design was
adopted for the study and a likert-scale type questionnaire was the main
instrument used for data collection. Simple percentages, tables and cut-off mean
were deployed for data analysis. The study further adopts the chi-square test
statistics to test the research hypotheses at 5% level of significance. The
study found that SMEs in Makurdi Metropolis keep sales & purchase daybook
and that SMEs in Makurdi Metropolis are faced with challenges of accounting
practices and these challenges have a significant effect on their operations.
It also recommended amongst others the need for Operators and management of
SMEs to give more attention to proper financial record keeping and financial
reporting procedures in SMEs as well as the need for government to consider
enacting a legislation that will make preparation of financial report by all
registered SMEs a must.
Key Words: Accountability, Accounting practices, record keeping, financial
reports, financial performance, small business.
CHAPTER
1
INTRODUCTION
1.1 Background
of the Study
The business environment has become intensively
dynamic and increasingly unpredictable in recent decades and, correspondingly,
managing company has become more demanding. Cost Accounting is a task of
collecting, analyzing, summarizing and evaluating various alternative courses
of action. Its goal is to advise the management on the most appropriate course
of action based on the cost efficiency and capability. The SMEs sector has been
recognized worldwide for its role in economic advancement through various ways like;
wealth generation, employment creation, and poverty reduction (Kithae, Gakure,
& Munyao, 2012). Small and medium scale enterprises are a fundamental part
of the economic fabric in most developing countries, and they play a very
important role in furthering growth, innovation and prosperity (Dalberg, 2011).
Small and Medium Enterprises are critical to
the development of any economy has they possess great potentials for employment
generation, improvement of local technology, output diversification,
development of indigenous entrepreneurship and forward integration with large
scale industries.
Cost accounting is a task of collecting,
analyzing, summarizing and evaluating various alternative courses of action.
Its goal is to advise the management on the most appropriate course of action
based on the cost efficiency and capability. Cost accounting provides the
detailed cost information that management needs to control current operations
and plan for the future.
In Nigeria, there has been gross
under-development of SMEs sub-sector and this has undermined its contribution
to economic growth and development. The key issue affecting the SMEs can be
group into four: unfriendly business environment, poor funding, low management
skill and lack of access to technology (FSS 2020 SME Sector Report, 2007).
Small and medium enterprises (SMEs) play an important role in the development
of a nation’s economy. The reasons for this are the fact that SMEs provide
benefits such as job creations, knowledge spillover, economic multipliers,
innovations driver and cluster development in an economy (Chinaemerem &
Anthony, 2012). Given the importance of SMEs in an economy, it becomes quite
plausible to look at factors affecting their financial performance which is a
major determinant of their survival and growth. An accounting system is an
orderly, efficient scheme for providing accurate financial information and
controls. Regulatory requirements and internal administration policies are key
considerations in the design of an effective accounting system. Thus,
accounting systems show the books, records, voucher, and files and related
supporting data resulting from the application of the accounting process. It
involves the design of documents and transactions flow through an organization.
The uniqueness of small and medium scale businesses calls for careful
consideration in the design of accounting systems. Small and medium scale
enterprises are a vast majority of businesses found in variety of primary and
intermediate production of the economy. These establishments have tremendous
impact on the state and well-being of the nation in employment generation, as
sources of national outputs and revenues, providing feedstock for large
corporations They may lack the sophistication to apply the detailed accounting
processes, yet the value of accounting systems to these businesses is quite
profound.
1.2
Statement of the Problem
Most of
the existing research literature on accounting in Port Harcourt SMEs tends to be
more biased toward the arm of cost accounting techniques in performance of
SMEs, more so only remote exists in regard of the adoption of cost accounting
techniques by SMEs in Port Harcourt [(Wairegi, 2011),(Makau, Wawire, &
Ofafa, 2013), (Waweru, 2012), (Mugambi, 2010) (Aduda, Mogutu, & Githinji,
2012) , lack of technical skills are as much obstacles to developing a small
business as is the inability to access credit (Mbogo, 2011). In Nigeria, SMEs
cover the entire range of economic activity within all sectors and share a
number of common problems that hinder them from effective performance in Port
Harcourt, include low market access to credit, poor information flow,
discriminatory legislation, poor access to land, weak linkages among different
sectors, weak operating capabilities in terms of skills, lack of knowledge and
attitudes, lack of infrastructural facilities among others. Other problems of SME’s
failure are poor management ability which includes accounting problem-solving. Small
and medium enterprise experiences difficulties in raising equity capital from
the finance houses or individuals. Even when the finance house agrees to
provide equity capital, the conditions are always dreadful. All these result to
inadequate capital available to the sector and thus lead to poor financing.
Other
problems facing SMES is Lack of competent management which is the consequence
of inability of owners to employ the services of experts; Use of obsolete
equipment and methods of production because of owner’s inability to access new
technology; Excessive competition which resulted from sales which is a
consequence of poor finance to cope with increased competition in the industry;
The high cost of available raw materials affects the prices of good food. This
only has adverse effect on the turnover of the enterprise but also on the
profitability; The availability of infrastructural facilities is grossly
inadequate in the areas of access roads, electricity, water supply, etc. and
Multiplicity of policies and regulatory measures such as removal of fuel
subsidy, taxes, several charges on loans.
The
place of sound accounting and internal control systems in any business,
irrespective of its scale, cannot be overemphasized. A vast majority of
small-scale businesses cannot afford the complexity of a detailed accounting
system even if they would have. Hence, the existence of single entries in their
books and in some cases incomplete records (Wood, 1979; Onaolapo, et al.,
2011). Audits of small and medium scale enterprises have proven to be among the
most worrisome for professional accountants because of the inadequacy of the
internal controls. This study thus sought to assess the determining factors and
the adoption levels of modern accounting techniques by SMEs in Port Harcourt.
1.3
Purpose of the Study
The main objective of this study is to assess the accounting
practices among SMEs in
Port Harcourt, and specifically to:
i.
Investigate whether significant number of
SMEs in Port Harcourt Metropolis adopts accounting practices.
ii.
Evaluate
the challenges of adopting accounting practices among SMEs in Port Harcourt
Metropolis.
iii.
Assess the effects of the challenges of
accounting practice on the operation of SMEs in Port Harcourt Metropolis.
1.4
Research Questions
i. What are the number of SMEs in Port Harcourt Metropolis that adopts
accounting practices.?
ii)
What are challenges of adopting
accounting practices among SMEs in Port Harcourt Metropolis.
iii. what are the effects of the challenges of accounting practice on the
operation of SMEs in Port Harcourt Metropolis?
1.5
Research Hypotheses
HO1. There is no significant
relationship between types of accounting records being kept and maintained by
SMEs.
HO2
There is no significant relationship between the factors hindering Cost Accounting
Techniques and SMEs in Port Harcourt.
HO3 There is no
significant relationship between accounting information being used in measuring
financial performance by SMEs in Port Harcourt.
1.6
Significance of study
The effect of Cost Accounting Techniques and
performance Small and Medium Enterprise development has been an area of intense
research both in practice and academia. This work is to prove helpful to
existing and potential entrepreneur of SMEs since this study lends assistance
in strategic effect of sources of finance in the performance of a business in
order to plan ahead. The research work could also serve as a source of future
reference to future researchers who may find it helpful in carrying out a
research work of similar nature or related topic. This empirical investigation
of SMEs is therefore a significant contribution to existing literature.
Furthermore, the study would provide evidence on the extent to which Rivers State
Small and Medium Enterprise are accounting accommodating in readiness for
gaining strategic competitive advantages in their businesses. The study would
also provide uniqueness of small and medium scale businesses call for careful
consideration in the design of accounting systems. Small and medium scale
enterprises are a vast majority of businesses found in variety of primary
and intermediate production of the economy.
1.7
Scope of the Study
The general scope of this study covers Cost
Accounting Techniques and performance Small and Medium Enterprise. The
geographical scope is Rivers State of Nigeria. The study will be
limited to selected SMEs in Port Harcourt.
1.8
Definition of Terms
Accounting: The
bookkeeping methods involved in making a financial record of business
transactions and in the preparation of statements concerning the assets,
liabilities, and operating results of a business.
SME:small
and medium enterprises) are businesses whose
personnel numbers fall below certain limits.
Cost
accounting: Is ‘the process of accounting for cost from
the point at which expenditure is incurred or committed to establishment of its
ultimate relationship with cost centres and cost units.
Accounting
records are all of the documentation and books
involved in the preparation of financial
statements or records relevant to audits and
financial reviews.
Financial
performance: Measuring the results of
a firm’s policies and operations in monetaryterms.