ACCOUNTING INFORMATION SYSTEM AND THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES A STUDY OF SME’S IN LAGOS METROPOLIS
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ACCOUNTING INFORMATION SYSTEM AND THE
GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES A STUDY OF SME’S IN LAGOS
METROPOLIS
ABSTRACT
The study
examined the accounting information system and the growth of small and medium
scale enterprises (a study of SME’s in Lagos metropolis). Two theories were
used in the study to have a wide scope in the research, namely; the Contingency
Theory and the Design of Accounting Information System and the Technology
Acceptance model (TAM).
The sample
of the study comprised ten SME’s in Lagos State, five from the island and five
from the mainland. Primary data was used in the study. A structured
questionnaire was used to collect necessary data from the selected staff of the
SME’s. The purposive sampling technique was used to select two hundred (200)
staffs from ten (10) SME’s. In furtherance, twenty (20) staffs were selected
per each enterprise selected. The data collected are subjected to the
quantitative analysis of descriptive statistics and chi-square technique.
Findings of the study indicated that accounting information system has
significant effect on the sales growth of SMEs in Lagos Metropolis (value of
chi-square is 6.48, and the critical value of chi-square is 5.74 at 5% level of
significance and 4 degree of freedom); accounting information system has
significant effect on the asset growth of SMEs in Lagos Metropolis (value of
chi-square is 9.79, and the critical value of chi-square is 7.59 at 5% level of
significance and 5 degree of freedom).
The study
concludes that accounting information system has significant impact on the
sales and asset growth of SMEs in Lagos Metropolis.
The study
suggests amongst others that, SMEs should improve their accounting system in
order to generate quality, reliable and timely accounting information, Owners
of SMEs should integrate accounting information system in their decision processes,
SMEs should endeavor to consult accountants regularly in order to be able to
maintain high and generally acceptable accounting practices, Accounting
training programmes for SMEs should be organized by the Lagos State Ministry of
Trade, Commerce and Industry for those who do not know the importance of
maintaining accounting records to come to grips with it, Government should
stipulate the minimum number of books to be kept by all SMEs that meet certain
criteria which certifies them to operate in Nigeria, SMEs should ensure that
the cost of acquiring AIS does not outweigh the benefits the company would gain
from using them.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Accounting
plays a vital role in the success or failure of contemporary business
institutions. Systems are responsible for recording, analyzing, monitoring and
evaluating the financial condition of business institutions, preparing
documents necessary for tax purposes, providing information support to many
other organizational functions, (Amidu, John & Joshua. 2011). In the
context of small and medium scale enterprises (SMEs), accounting information is
important as it can help the firms to manage their short-term problems in
critical areas like costing, expenditure and cash flow, by providing
information which will be used to support monitoring and control (Mitchell,
Reid & Smith, 2000; Son, Marriot, & Marriot, 2006).
Small and
Medium Scale Enterprises are the reasons behind any growing economy. Some of
the roles of small and medium scale enterprises include generating employment
opportunities, rural development, youth empowerment, immense contribution to
national income and growth, spread and development of adaptable technology and
regional balanced growth channel (Source *****). These enterprises are faced
with diversity of challenges in Nigeria due to numerous domestic and global
economic problems and policy inconsistencies. The result is a high mortality rate
of the firms (Dasanayaka, Kankanamge & Sardana, 2011). Some of the
challenges are internal to the enterprise and they include inadequate working
capital, high competition from larger companies, difficulties in sourcing raw
materials, low capacity utilization, poor of management strategies, and poor
educational background of operators, huge financial problems and reluctance in
embracing technology (Tafamel & Idolor, 2008; Osamwonyi and Tafamel, 2010).
Small
companies are often established from family business. Mostly, in family
business, are manage by family members. However, the workforce can be from
non-family members. Therefore, the business environment is different according
to the style of management as well as the culture that the family inherited from
generations to generations (Peter and Buhalis 2004). SMEs have an important
role to play in the development of Nigerian economy. The extent of contribution
these business units can make towards the growth and development of Nigeria
depend on how successful they are in their operations. The fact that is
underlying the success of a business enterprise is the establishment and
application of controls by the owners or management in addition to the
systematic record keeping of business transactions, which, at the end of the
period, keeps the owner well-informed about the performance of the business.
(Mbroh, John & Attom, 2011).
The study
conducted by Ismail (2009) are the financial management of enterprises.
Accounting information is information provided by the accountants and
accounting systems. This information is usually presented in financial
statements such as the income statement and the statement of financial
position. It also includes any financial ratios extracted from these financial
statements. Accounting systems are responsible for analyzing and monitoring the
financial situation of firms, preparation of documents that are necessary for
tax purposes, providing information to support many other organizational
functions such as production, marketing, human resource management, and
strategic planning. Without such a system it will be very difficult for SMEs to
determine performance, identify customer and supplier account balances and
forecast future performance of the organization. The primary purpose of an
accounting information system (AIS) is the collection and recording of data and
information regarding events that have an economic impact upon organizations
and the maintenance, processing and communication of such information to
internal and external stakeholders for proper decision making (Stefanou, 2006).
The growth
of computer technology in 1950’s had initiated increasing development in
information storing and processing (Rashid, Hossain, & Patrick, 2001).
Computer technologies increase the use of information due to its ability to
analyze massive amount of data and also producing accurate and timely reports.
These unique features of computer capabilities have led to the introduction of
various information systems such as Accounting Information System (AIS),
Manufacturing Resource Planning (MRP) system, Human Resource (HR) System.
Information system technology has definitely changed the way businesses are
being operated (Elliot, 1992). This system has contributed to increases in
business productions and transactions as firms are in better positioned to
achieve their objectives. Thus, this enhances business activities. More
businesses and transactions implied that there will be more accounting data
needed to be recorded and updated. Prior traditional accounting method of
manually inputting and recording daily transactions has become inefficient and
time wasting. Errors such as wrong data entry, inefficient tasks performance
and massive utilization of paper product created many problems to business activities
and organization’s performance. These inadequacies have led to the emergence of
accounting information system. A system that is able to gather, analyze and
produce reports more efficiently (Saira, Zariyawati & Annuar, 2010).
Aremu &
Adeyemi (2011) argued that except for statutory demands, Small and medium scale
enterprises hardly give serious thoughts to the process of sound accounting,
while also noting that the inadequacy and ineffectiveness of accounting
processes have been responsible for untimely collapse of most of them. The
circumstances highlighted above have persisted due to poor generation and use
of accounting information in Nigeria. The absence of accounting information
system in most small and medium enterprises in Nigeria tends to compound their
challenges.
1.2 Statement of the problem
Small and
medium scale enterprises are known to be the wheel behind the moving train of
the Nigerian economy, and as it is also known that every large business start
small. Its worthy of note that in spite of the importance and the indispensable
nature of SMEs in Nigeria, a lot of SMEs have not given much attention to
accounting information and book keeping
in relation to their business transactions, despite its importance in the
success of SMEs. This could be as a result of lack of sound knowledge in book
keeping practices by owners or respective managers.
Difficulty
exist in ascertaining the level of non-recognition of the necessity of
accounting information to continued existence and growth of smes'. Low
educational background of owners and employment of unskilled accounting staff
had affected the production of unreliable accounting or financial statement
which in turn affect managerial decision making.
It has also
been found out that most SMEs fail to keep proper books of account and also
fail to observe basic accounting procedures. As a result, they are not able to
portray the exact financial position of the enterprise. This tends to impede
the ability of the enterprise to obtain the most needed loans from financial
institutions and other sources for expansion and diversification. The financial
statements, such as the profit and loss accounts, statement of financial
position and the cash flow statement of SMEs cannot easily be prepared. Under such
circumstances, annual profits cannot readily be determined. SMEs in Nigeria are
however, often encountered with accounting and financial management challenges.
Poor record keeping, inefficient use of accounting information to support their
managerial decision making and the low quality and reliability of financial
data are part of the main problems of financial management concerns of SMEs in
Nigeria.
1.3
Objective of the study
The broad
objectives of the study is to examine the role of accounting information system
and the growth of small and medium scale enterprises. The specific objectives
are to:
1. To
determine the effect of AIS on sales growth.
2. To
determine the effect of AIS on asset growth.
1.4 Research
Questions
1. What are
the effect of AIS on sales growth?
2. What are
the effect of AIS on asset growth?
1.5 Research
Hypothesis
The
following hypothesis were formulated:
H01: AIS has
significant effect on sales growth.
H02: AIS has
significant on asset growth.
1.6 Operationalization of Variables
The main
objective is to examine the Accounting information system and the growth of
small and medium scale enterprises in Lagos Metropolis. The dependent variable
is the growth of small and medium scale enterprise, which is measured by two
variables namely Sales growth, Assets growth.
The
independent variable is Accounting information system captured by Ethical
values (EV), Effective accounting systems (EAS), Human resources (HR) and
Investment in technology (IT).
Y*= f (Y1,
Y2)
Y*= The
Growth of Small and medium scale enterprises
Where:
Y1= Sales
Growth
Y2= Asset
Growth
X=
Accounting information system
X= f (X1,
X2, X3,X4)
Where:
X1=Ethical
values
X2=Effective
accounting systems
X3=Human
resources
X4=Investment
in technology
It can also
be stated that the growth of small and medium scale enterprises is a function
of Accounting information system.
Y*= f (X1,
X2, X3, X4)
Converting
this functional relationship into a regression model, it becomes:
Y*= α0 +
α1X1 + α2X2 + α1X3+ α2X4 + µ
Where:
α0= Constant
term of the regression model
α1-4 =
Coefficients of parameter estimates of Accounting information system.
µ= Stochastic
variable.
1.7 Significance of the study
A good
accounting information system operated in a company is an indispensable aid to
effective management. It assures management of the reliability of decision
taken by them and that these decisions are in accordance with goals to be
attained. The research work will create great awareness to the management of
the firms or various businesses or other managers, the importance of
appropriate, complete and reliable set of records using accounting information
system for such purpose as quick, correct decision making and effective
planning and control of activities of their business.
To the
employees and consumers, it will help them to assess the ability of the
business to produce goods and render services on continuous basis and pay
salaries. The research will be of benefit to the government in terms of tax
collection and the regulation of business activities.
Lastly, the
study will contribute to the body of the existing literatures on the topic,
hence it will be of used to the prospective researchers.
1.8 Scope of the study
This study
focuses on the “accounting information system and the growth of small and
medium scale enterprises”. The population of the study comprises of SMEs in
Lagos metropolis, Lagos State registered with "Small and Medium Scale
Enterprises Development Agency of Nigeria" (SMEDAN).
1.9
Definitions of terms
Accounting:
It's the systematic process of recording, communicating, summarizing, analyzing
and reporting of financial information.
Accounting
information: This refers to the system of storing, processing of financial and
accounting data that are used by decision makers.
Accounting
information system: it's defined as a
computer based system that increases the control and enhance the cooperation in
the companies.
Small scale
businesses: This refers to a generally privately own business that employs a
small number of workers and does not have a high volume of sales.
Medium scale
enterprises: This refers to the typically result from the slow and steady
growth that results from a successful small business
Sales
Growth: This is the amount by which the average sales volume of a company's
products or services has grown, typically from year to year.
Assets
Growth: This is a corporate events associated with asset expansion.
Ethical
Values: The set of established principles governing virtuous behavior.
Effective
Accounting Systems: An effective accounting system is a type of system that is
accurate, useful and timely. Its purpose is to provide information for external
entities, such as tax agencies and investors, and for internal purposes, such
as evaluating efficiency and profitability.
Human
Resources: It is used to describe both the people who work for a company or
organization and the department responsible for managing resources related to
employees.
Investment:
It is an asset or item that is purchased with the hope that it will generate
income or will appreciate in the future.
Financial
statement is the formal record of the financial activities of a business,
persons or other entity. It also provide information about the regarding the
position and performance of the business such as its assets, liabilities,
equity, income, expenses and cash flow.
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