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computerised accounting in GhanaTRANSCRIPT
METHODIST UNIVERSITY COLLEGE GHANA
THE IMPACT OF COMPUTERISED ACCOUNTING INFORMATION ON THE DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN GHANA
(A STUDY OF SELECTED SME's IN ACCRA METROPOLIS)
BY
OSUMANU-SULEMAN, AMIDU KORIWIE
MAWUNU, KAFUI BENEDICTA
ANUM MABEL, AYERKI DEDE
JOSEPH, ADJEI TETE
MAY, 2015
THE IMPACT OF COMPUTERISED ACCOUNTING INFORMATION ON THE DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN GHANA
(A STUDY OF SELECTED SME's IN ACCRA METROPOLIS)
BYOSUMANU-SULEMAN, AMIDU KORIWIE
MAWUNU, KAFUI BENEDICTA
ANUM MABEL, AYERKI DEDE
JOSEPH, ADJEI TETE
A PROJECT WORK SUBMITTED TO THE DEPARTMENT OF ACCOUNTING FACULTY OF BUSINESS ADMINISTRATION, METHODIST UNIVERSITY COLLEGE GHANA FOR FULFILMENT OF REQUIREMENT FOR THE AWARD OF BACHELOR OF BUSINESS ADMINISTRATION (BBA) DEGREE IN ACCOUNTING
.
MAY 2015DECLARATIONWe hereby declare that this submission is our own work towards BBA degree and that, to the best of our knowledge, it contains no material previously published by another person nor material which has been accepted for award of any other degree of the University, except where due acknowledgement has been made in the text.We bear sole responsibility for any shortcomings.
............................................................ ......................................OSUMANU-SULEMAN AMIDU KORIWIE DATE (BBAA/ET/123001)
.................................................. ...........................................MABEL ANNUM AYERKI DEDE DATE (BBAA/ET/ 121479) ................................................... .............................................
MAWUNU KAFUI BENEDICTA DATE (BBAA/ET/121614)................................................. ......................................... JOSEPH ADJEI TETE DATE (BBAA/ET/113866)CERTIFICATION
I hereby certify that the preparation and presentation of this long essay were supervised in accordance with the guidelines on supervision of long essay laid down by the Methodist University College Ghana.
............................................... ...........................................WILLIAM OFFEI-MENSAH DATE (SUPERVISOR)
DEDICATION
We dedicate this piece of work to our colleague of blessed memory PHILIP ACQUAYE who met his untimely death in the first semester of level 300, R.I.P ACKNOWLEDGEMENT
We would like to thank our advisor, Mr. William Offei-Mensah, in assisting us to finish the long essay. He has given us support as well as valuable comments throughout the consultation period so that we can manage to handle one of the hardest subjects in our university life. In addition, we would also acknowledge our school-mates for their help in the data collection process. They have devoted their precious time for the interviews voluntarily and their wholehearted support contributes to the success of this long Essay.We wish to express our deep appreciation to our lecturers of Faculty of Business Administration who groomed and prepared us adequately, both academically and professionally, to face the challenges of this study. They deserve our sincere gratitude. May we also take this singular opportunity to register our high depth of indebtedness to Mr.Sumaila H.Suleman of the Sissala west GES for his support. We also thank Mr Richard B, Jacob Ladimine and Onowa Simon Owizy for their assistance in data analysis and Abigail Chiriwuo for the assistance in typing the manuscript and correcting all typographical and grammatical errors. Allah (God) richly blesses them all.Lastly, we also express gratitude to our colleagues most especially Emmanuel Glago, Ceecee M.Soumahoro, Dogbey Felix, A. Eric, Alex Dapaah Joshua Oppong, Frances (aka calculus), Agorkpa Bentile, Mahmud Amadu, Jerry Dombo and all those who asked not to be mention and not forgotten the various SMEs owners who gave us variable information to our questionnaire and also full acknowledgement goes to the various authors and researchers from whose works we derived useful information and ideas which were of so much help to the successful completion of this long essay.Table of ContentsiiiDECLARATION
ivCERTIFICATION
vDEDICATION
viACKNOWLEDGEMENT
viiTABLE OF CONTENTS
xLIST OF TABLES AND FIGURES
xiLIST OF ABBREVATIONS AND ACRONYMS
xiiABSTRACT
1CHAPTER ONE
1INTRODUCTION
11.0 Background to the Study
41.2Statement of the Problem
61.3Objectives of the Study
61.4Research Questions
71.5Research Hypotheses
71.6Significance of the Study
81.7Scope of the Study
91.8Definitions of Terms
101.9 Organization of the Study
11CHAPTER TWO
11LITERATURE REVIEW
112.1Introduction
132.2The concept of Computerised accounting information
192.3The Concept/Definition of Small and Medium Scale Enterprises
252.4Peculiar Small Business Challenge and Failure in Ghana
322.5 Empirical Review
342.5.1The Role of Computerised accounting information on the Improvement of the Performance of Small and Medium Enterprises in Ghana
382.5.2 The Role of Computerised accounting information in Expansion of SMEs
402.6Creating Computerised accounting information
422.7Importance of Small Business to the Ghanaian Economy
452.8 Summary of the Chapter
46CHAPTER THREE
46RESEARCH METHODOLOGY
463.0 Introduction
463.1 Research Design
463.2 Sample Selection and Design
473.3 Research Instrument
483.4 Validity and Reliability
493.5Specification of Variables Used
503.5.1 Independent Variable
503.5.2Dependent Variable
513.5.3Control Variables
513.6Specification of Models for Data Analysis
543.7Decision Rule for Testing Of Formulated Hypotheses
543.8Method of Data Analysis
553.9Data Collection Procedure
553.10Limitation of the Study Design
57CHAPTER FOUR
57DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS
574.0Introduction
574.1Data Presentation
614.3Descriptive Statistical
624.4Data Validity Test
634.5Regression Results
714.6Test of Research Hypotheses
734.7 Discussion of Result
76CHAPTER FIVE
76SUMMARY, CONCLUSION AND RECOMMENDATIONS
765.0 Introduction
765.1Summary of Findings
775.2Conclusion
785.3Recommendation
795.4Suggestion for Future Research Direction
81REFERENCES
88APPENDIX I: SUMMARY OF RAW DATA AND EXTRACTED FROM ADMINISTRED QUESTIONNAIRE
89APPENDIX II: LIST OF SOME SELECTED SMEs UNDERSTUDY
90APPENDIX III: Sample Questionnaire
LIST OF TABLES AND FIGURESTable 4.1 Distribution of Administered Questionnaire ............................58Table 4.2 Age Distribution of Respondents
............................. ....59Table 4.3 Educational Qualification of Respondents .......................... ....60Table 4.4 Business existence ................................................................. 60Figure : 4.5 Employees Distribution table ...... 61Table 4.6 Descriptive Statistics
.............................................62Table 4.7 Model Summary for Model 1 .........................................65Table 4.8 Regression Coefficient for Model 1 ...............................66Table 4.9 Model Summary for Adjusted Model 1 ...............................67Table 4.10 Regression Coefficient for Adjusted Model 1 ....................68Table 4.11 Model Summary for Model 2..................................................69Table 4.12 Regression Coefficient for Model 2 .....................................70Table 4.13 Model Summary for Adjusted Model 2 ...................71Table4.14 Regression Coefficient for Adjusted Model 2 ..................72
LIST OF ABBREVATIONS AND ACRONYMSAICPA ........................America Institute of Certified Public Accountants
ANOVA ......................Analysis of Variance
BDS .............................Business Development Service
BECE ..........................Basic Certificate of Education
CAS ..........................Computerised Accounting System
FAA ..........................Frequency of account audit
FPA............................Frequency of preparation of accounts
GDP............................Gross Domestic Product
GEDC .........................Ghana Enterprise Development Commission
GRATIS.......................Ghana Appropriate Technology Industrial Services
GSS ............................Ghana Statistical services
HND.............................. Higher National Diploma
IFC .................................International Finance Corporation
ITTUs............................Intermediate Technology Transfer Units
LA ................................Number of ledger account
MOTI.............................Ministry of Trade and Industry
NBSSI............................National Board for Small scale Industry
RC..................................Rate of consultation
SB...................................Number of subsidiary books
SD...................................Number of source documents
SME.................................Small and Medium Enterprises
SPSS....................................Statistical Package for Social Science
UNIDO..............................United nation's Industrial Development OrganisationABSTRACTThe dynamic role of small and medium scale enterprises (SMEs) in developing countries have been highly emphasised. These enterprises have been identified as the means through which the rapid industrialisation and other developmental goals of these countries can be realised. This study was embarked on to empirically investigate the impact of computerised accounting information to the development of small and medium scale enterprises. The multiple linear regression was employed to determine the usefulness of computerised accounting information by showing the kind and strength of relationship that exist between the various measures of accounting information (such as rate of consultation of account, number of source documents, number of subsidiary books, number of ledger accounts, frequency of preparation of account and frequency of account audit) and SME development measured in terms of annual profit and number of branches. The population of the study was made up of the total SMEs in Accra metropolis registered with the ministry of Trade and Industry while a sample size of 40 selected SMEs in Accra was utilized for the study. The findings of the study showed that computerised accounting information has a significantly positive relationship with performance and number of branches and as such accounting information is useful to the development of SMEs. Based on the findings of the study it was recommended that SME owners should ensure that they maintain an accurate and up to date accounting information system, capable of providing information that would boost their performance when utilized. Also they should endeavour to consult their accounting information when embarking on expansion or diversification programmes. Furth more the findings will assist policy makers, development agencies and business organisations to ascertain the appropriate strategy to improve the SMEs.CHAPTER ONE
INTRODUCTION1.0 Background to the Study
The overriding importance of small and medium enterprises to the Ghanaian economy has made it imperative for researchers to direct much attention and effort towards the identification of possible ways through which a sound Small and Medium Enterprise (SME) sub-sector will be established in Ghana, as well the communication of such feasible solution to stakeholders and policy makers.
The dynamic role of small and medium enterprises (SMEs) in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognised. It is estimated that SMEs employ 22% of the adult population in developing countries (Daniels, 1994; Daniels & Ngwira, 1992; Daniels & Fisseha, 1992; Fisseha, 1992; Fisseha & McPherson, 1991; Gallagher & Robson, 1995). The sector employs about 15.5% and 14.09% of the labour force in Ghana and Malawi respectively (Parker et al, 1994), has experienced higher employment growth than micro and large scale enterprises (5% in Ghana and 11% in Malawi). In Ghana, the sectors output as a percentage of GDP accounted for 6% of GDP1 in 1998, the importance of these Small and Medium Enterprise (SME) in the Ghanaian economy flows from the vital role they play in the development of a nation's economy.
Abdulrasheed et al. (2012) considers Small and Medium Enterprise (SME) as the engine of growth in many economies. He argued that their importance can be viewed from the perspective of employment generation, contribution to export earnings and Gross Domestic Product (GDP).
Every business has numerous processes; some simple, others complex and cumbersome. But as the business grows, acquires new customers, enters new markets and keeps pace with constant changes in information technology, companies need to maintain highly accurate and up-to-date accounting, inventory and statutory records. This is where a Computerised Accounting System helps simplify, integrate, and streamline all the business processes, cost effectively and easily and helps presents the true picture of all the business undertakings to users of financial reports. With the decrease in the price of computers and accounting programs, this method of keeping books is becoming popular (Raymond and Bergeron, 1992). Osotimehin et al. (2012) sees Small and Medium Enterprise (SME) as a veritable tool for the achievement of national macro-economic objective in terms of employment generation at low investment cost, creation of industrial interlinks by consuming products of large firm and providing products used by large firms. Survey Report on Small and Medium Enterprises 1990, conducted by National Board for Small Scale Industries (NBSSI) and Ghana statistical services (GSS) outlined the following as roles played by SME;
a) Improvement of per capital income,
b) increased value addition to raw materials supply
c) improved export earnings and
d) Step up of capacity utilization in key industries.
Furthermore, considering the current social economic environment of Ghana, which is filled with tension and fear of no and/or insufficient source of income, emanating from the high level of unemployment in the country. (Kpelai, 2009, Osisioma 2010). It becomes enticing and somewhat expedient to explore the SME sub-sector since it is considered as an effective means of reducing the level of unemployment in the country. (Abdulrasheed et al., 2012; Osotimehin et al., 2012; Kpelai 2009, Okoh & Uzoka. 2012). On the basis of the foregoing argument, the various democratic regimes in Ghana came up with different strategies and policies aimed at reducing the alarming rate of unemployment in the country through the SME. Governments almost all over the world had formulated policies aimed at facilitating and empowering the growth, development and performance of the SME's to grow through soft loans, managerial training and other fiscal incentives through support from international agencies and organisations like World Bank and United Nations Industrial Development organisation (UNIDO).
Unfortunately, research has shown that most of such small businesses do not stand the test of time not to talk of growing into corporations. The mortality rate of small and medium scale enterprises in Africa is high (Kpelai, 2009). Put differently a greater number of small business who enter business every year fail rather than succeed (Chioma, 1979). This trend has a negative implication on the economy by inhibiting the success of SME, thereby preventing the attainment of their potential benefit. Keplai (2009) believes that inadequate training in managerial skills resulting to inability to make and/or effectively use computerized accounting information is a major factor inhibiting the progress of SME. Okoh and Uzoka (2012), posits that management of small enterprises is constrained by lack of accounting knowledge by stakeholders. This constitutes a big problem because accounting is considered the language of business and covers the basic economic events of a business. Based on the foregoing discussion, it is imperative to determine whether or not the effective utilization of computerised accounting information by mangers/owners of SME could help improve the performance of SME ( i.e., whether computerized accounting information utilization has an influence on the performance of small and medium enterprises [SME] in Ghana). 1.2Statement of the Problem
After the independence of Ghana till date, a good number of small and medium scale enterprises have been established in Ghana. This is stimulated by the governments effort towards improving the various indices of good living of the Ghanaian populace.
Unfortunately, majority of these firms have been unable to stand the test of time while the growth of some others have been stunted (Kpelai 2009), implying that most small and medium scale enterprises (SME) established in Ghana do not survive or grow to expected height.
The advancements in information technology have eventually led to the introduction of Computerised Accounting Systems in corporate reporting to help produce relevant and faithful representative financial reports for both management and external users for decision making (Greuning, 2006). The many advantages from the use of these systems have led many to conclude that Computerised Accounting Systems in Corporate Reporting is the engine of growth in business organisations (Frenzel, 2006).
It is worth noting that, notwithstanding the introduction of these Computerised Accounting Systems and despite the enormous benefits from the use of these systems, the problem is that some companies still make use of the Manual Accounting Systems which are often characterised by keeping a large number of books and are usually associated with errors in recording large volumes of transactions. Reasons for the use of the manual accounting system may be attributed to factors such as inadequate supply of expertise knowledge about the Computerised Accounting Systems; high cost of installation and maintenance; resistance to change; risks of being hacked; power failure; viruses and losing information.
Chioma (1979) believe that a greater number of small business owners who enter the business every year fail to succeed. These failures have been associated with a number of factors which include; lack of access to fund, lack of entrepreneurship skills, poor credit rating, poor management practice such as poor record keeping, inability to make or inappropriate use or inadequate use of computerised accounting information among others (Kpelai, 2009; Okoh & Uzoka, 2012, Abdulrasheed et al., 2012). According to Wichmam (1983) and World Bank (1978) cited in Naruanard (2003), poor record keeping and inefficient use of computerised accounting information are the major causes of business failure.
However, an examination of the extent to which computerised accounting information affect the performance of small business would help reveal whether utilization of computerised accounting information improves the performance of such small businesses, with the increased in complexity of transactions and the emergence of new technologies, how are the SME's positioning themselves to take advantage of Information Technology to improve their corporate reporting?
1.3Objectives of the Study
The major objective of the study is to investigate the impact of computerised accounting information to the development of small and medium scale enterprises. The specific objectives are:
1. To determine the relationship between the accounting information and the performance of SME development in Ghana
2. To examine the relationship between computerized accounting information and expansion and diversification programs of SME's in Ghana.
3. To make appropriate recommendation for solving or at least eliminating the indentified challenges of SME's using computerise accounting information for development of the SME's in Ghana.1.4Research Questions
In an attempt to achieve the above research objectives, the following research questions have been developed for examination
1. Is there any significant relationship between computerised accounting information and the performance of small and medium enterprises?
2. Is there any significant relationship between computerised accounting information and expansion/diversification of small and medium scale enterprise? 1.5Research Hypotheses
The researcher has formulated the following hypothesis for the study in a null form.
Ho1:There is no significant relationship between computerised accounting information and the performance of SME.
Ho2:There is no significant relationship between computerised accounting information and expansion/diversification of SME.
1.6Significance of the Study
Over the years, there has been public outcry for fresh graduates who will develop their entrepreneurial skills and embark on legal economic ventures that will enable them earn some income and even employ others rather than roam the streets in search of jobs.
i. One of such venture is the establishment of small and medium scale businesses which is purported to be in their capacity. However, the success of such small business (keeping other factors constant) will depend on the proper use of computerised accounting information. This is based on the fact that computerised accounting information covers the basic economic events of a business and consequently captures relevant data relating to performance of a business in terms of sustainability and growth.
ii. The study will be particularly useful to fresh graduates who intend to go into business by facilitating the sustainability and growth of small and medium business which will in turn provide gainful and continuing employment to such graduates.
iii. The study will also aid government in developing policies and strategies that will create an enabling environment for the sustainability, growth and development of small and medium scale businesses by considering the relevance of computerized accounting information to businesses when formulating policies that affect small businesses.
iv. Small and medium business owners may also be given some insight on the possibility of breaking out of stagnation in business by paying due attention to computerized accounting information in their business decision making process.
v. Finally, the study intends to contribute towards reduction of unemployment rate in the country via the establishment of a vibrant small and medium industry sub-sector. 1.7Scope of the Study
The study covers all aspects of accounting involved in the production of useful information for all stakeholders in a business. It covers financial accounting cost and managerial accounting which are used in producing computerised accounting information. Also the study is limited to small and medium businesses in Accra metropolis for periods between 2000 to 2014. The study lasted for a period of three months. The selection mix of the SME's provided a comparative point of assessing the impact of computerised Accounting Information on the development of SME's in Ghana.
1.8Definitions of Terms
Small Medium Enterprises: All over the globe there has being a lot of definitions as to what exactly is meant by small and medium enterprises, most often, the commonly used criterion is the number of employees of the enterprise. In most developing economy including Ghana, small and medium enterprises tend to have few employees who tend also to be mostly relatives of the owner hence there is often lack of separation between ownership and control. As a result, an operational definition is important for the study.
The most commonly used principle which has been identified from the various definitions is the number of employees of the enterprise. As contained in its Industrial Statistics, the Ghana Statistical Service (GSS) considers firms with less than 10 employees as Small Scale Enterprises (Kayanula and Quartey, 2000) and it is this definition that has been adopted and used in the course of the study.
The employee principle which has been considered in this study is also in line with the definition of Small-Scale Enterprises adopted by the NBSSI.
Business Development: In the content of these write up, business development refers to the sustenance and growth of a business with a positive multiplier effect on the economy at large.
Computerised accounting information: This relate to information gotten via the use of financial, costing and managerial accounting techniques to process economic data (events) of a business and produce useful information that can be used by stakeholders of a business such as; (Managers, employees owners, government etc) for making business, financial and investment decisions.
Accounting Analysis: It is a process of evaluating the extent to which a firm accounting reflects economic reality (Wild et al 2007).Accounting Ratio Analysis: This entails the analysis of mathematical relation between two or more accounting variables or quantities (Jennings 1993).
1.9 Organization of the Study
Chapter 1: This chapter will talk about introduction of this study, which will also include brief introduction of the topic, research background, rationale behind choosing the topic, problem statement, aim and objectives, justification and limitations of this research. Chapter 2: The second chapter is the literature review of this study. It will be about the works of various authors and scholars who have highlighted and discussed about the theories of the topic from different dimension. Chapter 3: This third chapter will discuss the research method that will be used in this research paper. Research method allows the researcher to plan and design the whole research in a proper way and shows the right direction to achieve an outcome. So the chapter explains the reasons behind the use of selected research method and the advantages by using the specified research approach. Chapter 4: This chapter will analyze the data to provide a fruitful meaning of the research finding. Chapter 5: This chapter will discuss research recommendations, limitations, and further research on this topic and also describe how managers can get benefit or managerial implications of this paper.
CHAPTER TWO
LITERATURE REVIEW
2.1Introduction
To date, accounting information systems (AIS) research has not matured to the point of having a framework to describe its research areas nor the major constructs under investigation. As a result, it is difficult to identify areas for future research and relationships between research streams.In an effort to propel the study on the part of determining whether or not computerised accounting information is useful to the development of small and medium business, a critical review of a good number of related works on the subject area are carried out. Computerised Accounting Systems (CAS), however, is widely used in many corporate bodies including SMEs. For example, in Australia, the Yellow Pages (1997) reported that 76% of the small businesses surveyed had at least one computer and 75% of these used accounting software. Burgess (1997) in a review of IT adoption by Australian small businesses concluded that the main software application package used was accounting (Burgess 1997 and Wenzler 1996). In general, an information system is used to represent real world phenomena with a set of symbols that are themselves captured and implemented within a computerised environment (McCarthy 1979). Therefore, an accounting information system is one that translates representations of economic activities into a format that is valuable to accountants and to their customers -- i.e., business decision makers -- who need information about economic activities.
Accountants are being pressured to re-define their contribution to organizations and to expand the scope of their activities beyond financial statement preparation and analysis (Elliott 1994, Brecht and Martin 1996). According to ISAB Framework for preparation and presentation of financial statement, the objective of financial statements is to provide information about the financial position, financial performance and changes in financial position of a company that is useful to a wide range of users in making economic decisions. These financial statements are usually directed towards the common information needs of these users and as a result, it serves as their major source of financial information. Users of these financial statements include shareholders, prospective investors, employees, customers and government. The act of communicating financial information to these users is known as Financial Reporting. By these problems under study is linked with existing theories and the works of scholars relating to similar issue so as to smoothen the part on which the study will be propelled.
Specifically, this chapter is prepared to carefully conceptualise computerised accounting information in 2.2, define and describe small and medium enterprises in 2.3, identify the peculiar small business challenge and failure in Ghana in 2.4, carry out an empirical review of relevant related literatures in 2.5, identify the role of computerised accounting information in improving the performances of SMEs in 2.5.1, identity the role of computerised accounting information in expansion of SMEs in 2.5.2, outline the process for creating computerised accounting information in 2.6, pin pointed the importance of small businesses to Ghanaian economy in 2.7 and finally a summary of the chapter would be carried out to outline the major issues addressed by the chapter. 2.2The concept of Computerised accounting information
Information generally refers to processed data or the finished product of a series of processes, inherent in the processing of raw data, which is capable of inducing some action on the part of the recipient. An accounting information system is one that captures, stores, manipulates, and presents data about an organizations value-adding activities to aid decision makers in planning, monitoring, and controlling the organization." This definition certainly includes financial accounting systems, which have the primary purpose of generating financial statements in accordance with Generally Accepted Accounting Principles. However, this definition recognizes that businesses must perform a wide range of value-adding activities (such as production, distribution, sales, etc.) to be successful, and that the types of information needed to manage such activities will be extensive. Therefore, the scope of corporate systems that are included under the AIS umbrella is much broader than the general ledger system and the programs that prepare journal entries to feed it. Rather, AIS is a system that aids in processing transactions and in tracking the data that result from such transactions. These systems also must provide performance measurements (financial and non-financial) and help enforce management control objectives. They include transaction processing systems (such as billing systems for sales processes), inter-organizational systems that share data with upstream and downstream partners (such as web-based order systems and electronic data interchange cash receipt processing), and support systems that enable economic exchanges (such as order processing, customer market analysis, and inventory control systems).Computerised accounting information therefore could be viewed as information derived from the processing of economic events or financial transactions of a business entity in such a manner that the recipient of such information can derive utility from the consumption of such information. Glautier et al. (2011), attest to this by asserting that the relevance and usefulness of computerised accounting information entails beyond purely operational consideration to an evaluation of the degree to which the needs of the users of computerised accounting information are satisfied.
According to Frank W. (2012) accounting information system (AIS) is the total suite of components that, together, comprise all the inputs, storage, and transaction processing, collecting and reporting of financial transaction data. It is, in effect, the infrastructure that supports the production and delivery of accounting information. The objective of an accounting information system is to collect and store data about accounting transactions so as to generate meaningful output for decision making.
Accounting Software on the other hand is a class of computer programs that perform accounting operations. Accounting Software is an application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. Thus, these software packages allow the whole accounting system to be run on a computer hence the name Computerised Accounting System. (Daniel Bricklin, 1985)
The processing of these economic events is capture in the definition of accounting by the America Institute of Certified Public Accountants [AICPA], (1961). The institute defined accounting as the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and events which are in part or at least of financial character and interpreting the results thereof. This process describes the series of activities and procedures carried out to produce useful computerised accounting information. Such information could be derived from financial, costing and management accounting techniques used to capture and process economic and financial data of a business.
Financial accounting technique creates computerised accounting information (for both internal and external users) via the preparation, analysis and interpretation of financial statements such as the income statement(Statement of Financial performance/Comprehensive Income), cash flow statement, balance sheet(statement of financial position),Value Added statement, Explanatory Notes Accompanying Financial statements, Historical Summary/comparative financial Statements and so on. Meighs et al. (2001) defines financial computerised accounting information as information describing the financial resource, obligation and economic activities of an entity. Such information are usually revealed in the financial position, which describe an entitys financial resources and obligation at a point in time, and results of operation which describe an entity financial or economic activities during the year. Lately, Vitez (2010) reviewed that paper ledgers, manual spreadsheets and hand-written financial statements have all been translated into computer systems that can quickly present individual transactions into financial reports. Computerised Accounting Systems follow the same logic of journal, ledgers, reports and statements in a manual system. Computerised systems simply consolidate posting functions and other basic tasks into a "behind the scenes" System. Companies can also generate reports and financial statements easier, allowing for better performance management reviews. Computerised Accounting System is therefore a computer based system which combines accounting principles and concepts as well as the concept of information system to record, process, analyse and produce financial information to its users for making economic decisions. (Gelinas et al, 2005)
Figure 2.1 a computerised Accounting Information system model
Feedback Feedback
(Gelinas et al, 2005)
Raymond and Bergeron (1992) researched into the increasing rate of adoption of Computerised accounting information among SMEs and concluded that, the advent of powerful, low cost microcomputers, together with user-friendly accounting software and the benefits associated with the use of AIS, has allowed a greater number of SMEs to implement IT in recent years. Therefore, AIS adoption among corporate bodies in general is as a result of combination of different factors as well as the benefits associated with such. Cost accounting techniques on the other hand are used to produce useful information for internal management to aid the control of various costs incurable in the course of running a business. Glautier et al. (2011) opined that cost management is a key success factor requiring information for product and service monitoring as well as cost control.
Management accounting uses both financial and costing techniques and/or information in providing solutions to business problems when faced with alternative course of actions (Adeniyin, 2011). Meighs et al. (2001) argued that management accounting involves the development and interpretation of computerised accounting information intended specifically to aid management in running the business. The owner/manager uses this information in setting an entitys overall goal, evaluating performance of departments and individuals, deciding whether to introduce a new line of product and in making virtually all types of management decisions.
However, to increase the effectiveness and efficiency with which useful computerised accounting information is provided to users, a suitable computerised accounting information system (AIS) must be put in place. Meighs et al. (2001) defined an accounting system of one consisting of personnel, procedures, devices and records used by an entity to; develop computerised accounting information and to communicate these information to decision makers.
A computerised accounting information system provides all forms of computerised accounting information needed by users. It captures information on the profitability, liquidity and health position of a business. (Diamand et al., 2000; Okoli, 2012). Worthy of note also is the automation of accounting system that has helped in improving the speed and accuracy with which accounting reports are prepared. To wrap it up, nearly everyone uses computerised accounting information in reality. It is simply the means by which we measure and communicate economic events (Meighs et al., 2001). It links decision makers with economic activities and the result of their decisions. Computerized Accounting Information Systems are important to businesses in various ways. The use of computers is time-saving for businesses and all financial information for the business is well organized (Baren, 2010).
Exhibit 2.2 an Integrated Computerised accounting Information system
Frank W. & Sangster A (2012)
Exhibit 2.2 includes a payroll module .Business with a large number of employees would find this particularly useful as a payroll systems require a good deal of regular processing and again a reasonable knowledge of payroll is required in order to set up the system in the first place.
2.3The Concept/Definition of Small and Medium Scale Enterprises
There is no single, uniformly acceptable, definition of a small firm (Storey, 1994).
Firms differ in their levels of capitalisation, sales and employment. Hence, definitions which employ measures of size (number of employees, turnover, profitability, net worth, etc.) when applied to one sector could lead to all firms being classified as small, while the same size definition when applied to a different sector could lead to a different result. The first attempt to overcome this definition problem was by the Bolton Committee (1971) when they formulated an economic and a statistical definition.
Under the economic definition, a firm is regarded as small if it meets the following three criteria:
i. it has a relatively small share of their market place;
ii. it is managed by owners or part owners in a personalised way, and not through the
iii. medium of a formalised management structure;
iv. It is independent, in the sense of not forming part of a large enterprise.
The Committee also devised a statistical definition to be used in three main areas:
i. Quantifying the size of the small firm sector and its contribution to GDP, employment, exports etc.
ii. comparing the extent to which the small firm sectors economic contribution has
Changed over time;
iii. applying the statistical definition in a cross country comparison of the small firms economic contribution.
Thus, the Bolton Committee employed different definitions of the small firm to different sectors. Alternatively, Wynarczyk et al (1993) identified the characteristics of the small firm other than size. They argued that there are three ways of differentiating between small and large firms. The small firm has to deal with:
i. uncertainty associated with being a price taker;
ii. limited customer and product base;
iii. uncertainty associated with greater diversity of objectives as compared with large Firms.
As Storey (1994) stated, there are three key distinguishing features between large and small firms. Firstly, the greater external uncertainty of the environment in which the small firm operates and the greater internal consistency of its motivations and actions. Secondly, they have a different role in innovation; small firms are able to produce something marginally different, in terms of product or service; this differs from the standardised product or service provided by large firms. A third area of distinction between small and large firms is the greater likelihood of evolution and change in the smaller firm; small firms which become large undergo a number of stage changes. It was against this background that the European Commission (EC) coined the term `Small and Medium Enterprises (SME). The SME sector is made up of three components:
i. firms with 0 to 9 employees - micro enterprises
ii. 10 to 99 employees - small enterprises
iii. 100 to 499 employees - medium enterprises.
Thus, the SME sector is comprised of enterprises (except agric, hunting, forestry and fishing) which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firms upper limit is more appropriate given the increase in productivity over the last two decades (Storey, 1994:13). Finally, the EC definition did not assume the SME group is homogenous, that is, the definition makes a distinction between micro, small, and medium sized enterprises
.
However, the EC definition is too all-embracing for a number of countries. Researchers would have to use definitions for small firms which are more appropriate to their particular `target group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile unless size is a factor which influences performance. For instance, the relationship between size and performance matters when assessing the impact of a credit programme on a targeted group.(also refer to Storey, 1994).
According to World Bank since 1976 - Firms with fixed assets (excluding land) less than US$ 250,000 in value are Small Scale Enterprises. Grindle et al (1989:9-10) - Small scale enterprises are firms with less than or equal to 25 permanent members and with fixed assets (excluding land) worth up to US$ 50,000. USAID in the 1990s - Firms with less than 50 employees and at least half the output is sold (also refer to Mead, 1994).
UNIDOs Definition for Developing Countries:
i. Large - firms with 100+ workers
ii. Medium - firms with 20 - 99 workers
iii. Small - 5 - 19 workers
iv. Micro - < 5 workers
UNIDOs Definition for Industrialised Countries:
i. Large - firms with 500+ workers
ii. Medium - firms with 100 - 499 workers
iii. Small - 99 workers
From the various definitions above, it can be said that there is no unique definition for a small and medium scale enterprise thus, an operational definition is required. A point of caution is that the process of valuing fixed assets in it poses a problem. Secondly, the continuous depreciation in the exchange rate often makes such definitions out-dated. Steel and Webster (1990), Osei et al (1993) in defining Small Scale Enterprises in Ghana used an employment cut off point of 30 employees to indicate Small Scale Enterprises. The latter however disaggregated small scale enterprises into 3 categories:
i. micro -employing less than 6 people;
ii. very small, those employing 6-9 people;
iii. Small -between 10 and 29 employees.
The choice of small and medium scale enterprises within the industrial sector is based on the following propositions:
(a) Small and Medium Scale Enterprises
Mobilise funds which otherwise would have been idle;
Have been recognised as a seed-bed for indigenous entrepreneurship;
SMEs are labour intensive, employing more labour per unit of capital than large enterprises
SMEs Promote indigenous technological know-how;
Are able to compete (but behind protective barriers);
Use mainly local resources thus have less foreign exchange requirements;
Cater for the needs of the poor and;
Adapt easily to customer requirements (flexible specialisation).
These enterprises have been recognised as the engines through which the growth objectives of developing countries can be achieved. They are potential sources of employment and income in many developing countries. It is estimated that SMEs employ 22% of the adult population in developing countries (Daniels, 1994; Daniels & Ngwira, 1992; Daniels & Fisseha, 1992; Fisseha, 1992; Fisseha & McPherson, 1991; Gallagher & Robson, 1995)
Every company applies accounting because it is generally accepted that companies have to reveal certain financial and management information to economic users and of course because accounting is an indispensable tool in business decision-making process. Accounting is an important part of every company thus; businesses are required to keep proper books of accounts (Section 123 of the Companies Code (1963), Act 179). Accounting can be divided into two basic categories: those which apply manual accounting and those which prefer computerized accounting systems (Weber, 2010).
Furthermore, Kpelai (2009) defined small business as group of businesses whose scale of operations are less than average for the industry, where managers are, at least, co-owners and provide substantial part of the start-up capital. He further outlined the characteristics of small businesses, which include the following;
i. One individual/family often holds ownership and management hence decisions are subjective
ii. Small businesses require small capital base in general. However, they have difficulty in attracting funds for expansion as a result of which majority of them rely heavily on personal sources (Ogunleye 2000:28)
iii. Most small business operate labour intensive production
iv. The manager/proprietor hardly can separate his private funds and these contradict the accounting entity principle which could contribute to inefficiency and non-performance of many small businesses.
v. The rate of small business mortality is high.
vi. Small and medium business could take the form of sole proprietorship, partnership or a private limited liability company.
Traditional small businesses which have little growth potentials include: barbing shops, shoe repair shop, small farm holders using traditional implements, bricks/block making, animal husbandry, poultry and so on. They are mostly operated and manage by the owner and take the form of sale proprietorship. High growth businesses on the other hand are categories of small businesses with high growth potentials. They employ advance technology in their production process in order to remain competitive in the market and they are run by teams of management expert. Their rate of growth makes them cross easily to medium and large scale business in a short period of time. Kpelai (2009) outline examples of such businesses to include; computer and information technology related enterprises, fast food industries, telecommunication accessories industries etc. Just like small business, the capital based, number of employees, level of sophistication of technology, legal form etc are criteria's used to define medium scale businesses.
Finally most medium scale business in Ghana take the form of private companies and engage in businesses within the manufacturing, trading and even the support the trade sector such as transportation, telecommunication etc.
2.4Peculiar Small Business Challenge and Failure in Ghana
Despite the wide-ranging economic reforms instituted in the region, SMEs face a variety of constraints owing to the difficulty of absorbing large fixed costs, the absence of economies of scale and scope in key factors of production, and the higher unit costs of providing services to smaller firms (Schmitz, 1982; Liedholm & Mead, 1987; Liedholm, 1990; Steel & Webster, 1990).
Below is a set of constraints identified with the sector.
i. Input Constraints: SMEs face a variety of constraints in factor markets (also see Levy, 1993). However, factor availability and cost were the most common constraints. The specific problems differed by country, but many of them were related, varying according to whether the business perceived that their access, availability or cost was the most important problem and whether they were based primarily on imported or domestic inputs (World Bank, 1993; Parker et al, 1995). SMEs in Ghana and Malawi emphasised the high cost of obtaining local raw materials; this may stem from their poor cash flows (Parker et al, 1995). Aryeetey et al (1994) found that 5% of their sample cited the input constraint as a problem.
ii. Finance: Access to finance remained a dominant constraint to small scale enterprises in Ghana. Credit constraints pertaining to working capital and raw materials were cited by respondents (between 24% and 52% in Parker et al, 1995). Aryeetey et al(1994) reported that 38% of the SMEs surveyed mention credit as a constraint , in the case of Malawi, it accounted for 17.5% of the total sample(Daniels & Ngwira, 1993:30-31). This stems from the fact that SMEs have limited access to capital markets, locally and internationally, in part because of the perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms. As a result, SMEs often cannot obtain long-term finance in the form of debt and equity.
iii. Labour Market: This seems a less important constraint to SMEs considering the widespread unemployment or underemployment in these countries. SMEs generally use simple technology which does not require highly skilled workers. However where skilled workers are required, an insufficient supply of skilled workers can limit the specialisation opportunities, raise costs, and reduce flexibility in managing operations. Aryeetey et al (1994) found that 7% of their respondents indicated that they had problems finding skilled labour, and 2% had similar problems with unskilled labour.
iv. Equipment & Technology: SMEs have difficulties in gaining access to appropriate technologies and information on available techniques. This limits innovation and SME competitiveness. Besides, other constraints on capital, and labour, as well as uncertainty surrounding new technologies, restrict incentives to innovation. 18% of the sampled firms in Aryeetey et al (1994) mentioned old equipment as one of the four most significant constraints to expansion (18.2% in Parker et al, 1995).
v. Domestic Demand: 5% of Ghanaian proprietors indicated they had marketing constraints (Aryeetey et al, 1994; Daniels & Ngwira, 1993). The business environment varied markedly among SMEs in Ghana, reflecting different demand constraints after adjustment. There were varying levels of uncertainty caused by macroeconomic instability and different levels of government commitment to private sector development. Recent economic policies have led to a decline in the role of the state in productive activity but a renewed private investment has created new opportunities for SMEs. Nonetheless, limited access to public contracts and subcontracts, arising from cumbersome bidding procedures and/or lack of information, inhibit SME participation in these markets. Also, inefficient distribution channels often dominated by larger firms pose important limitations to market access for SMEs. As noted in the case of Ghana, demand constraints limited the growth of SMEs (Parker et al, 1995).
vi. International Markets: Previously insulated from international competition, many SMEs are now faced with greater external competition and the need to expand market share. However, this problem was mostly identified in medium-sized enterprises in Ghana (12.5% in Aryeetey et al, 1994:13), less than 1% of the total sample complained there were too many imported substitutes coming into the country. Daniels & Ngwira (1993). However, Riedel et al (1988) reported that Tailors in Techiman (Ghana) who used to make several pairs of trousers in a month went without any orders with the coming into effect of trade liberalisation. Limited international marketing experience, poor quality control and product standardisation and little access to international partners, impede expansion into international markets. It is reported that only 1.7% of firms export their output (Aryeetey et al, 1994).
vii. Regulatory Constraints: Although wide ranging structural reforms have improved, prospects for enterprise development remain to be addressed at the firm-level.
viii. Legal: High start-up costs for firms, including licensing and registration requirements can impose excessive and unnecessary burdens on SMEs. The high cost of settling legal claims and excessive delays in court proceedings adversely affect SME operations. In Malawi, prohibitive laws like The Business Licensing Act, The Electricity Act, The Control of Goods Act, and The Export Incentives Act, have severely constrained SME development (Makoza & Makoko, 1998). 5.3% of proprietors in Malawi mentioned this as a constraint (Daniels & Ngwira, 1993). In the case of Ghana, the cumbersome procedure for registering and commencing business were key issues often cited. However, Aryeetey et al (1994) found that this accounted for less than 1% of their sample. Meanwhile, the absence of antitrust legislation favours larger firms, while the lack of protection for property rights limits SME access to foreign technologies.
ix. Managerial Constraints (Lack of Entrepreneurial & Business Management Skills): Lack of managerial know-how places significant constraints on SME development. Even though SMEs tend to attract motivated managers, they can hardly compete with larger firms. The scarcity of management talent, prevalent in most countries in the region, has a magnified impact on SMEs. The lack of support services or their relatively higher unit cost can hamper SME efforts to improve their management because consulting firms often are not equipped with appropriate cost effective management solutions for SMEs. Furthermore, absence of information and/or time to take advantage of existing services results in weak demand for them. Despite the numerous institutions providing training and advisory services, there is still a skills gap among the SME sector as a whole. According to Daniels & Ngwira (1993), about 88% of Malawian SMEs desired training in various skills but as of 1992, less than 6% have actually received it. In Ghana, a lot has actually been achieved in this regard, though there is still room for improvement.x. Institutional Constraints: The lack of cohesiveness and the wide range of SME interests limit their capacity to defend their collective interests and their effective participation in civil society.
xi. Associations and collective action: Associations providing a voice for the interests of SMEs in the policy-making process have had a limited role compared to those of larger firms. Many of the entrepreneurs associations have yet to complete the transition of their goals from protectionism to competitiveness (World Bank, 1993). Additionally, the potential economies of collaborative arrangements in production and sales among SMEs have not been adequately explored.
The dependence of the SME sector in Ghana on large-scale enterprises as purchasers of output, either for sale, as final goods or to be used as intermediate inputs, is very limited. Only 13% of firms produce any item for or component for larger firms. Interdependence among SMEs is very minimal. As reported in Osei et al (1993), only 17.6% of firms with growing output and 8.4% of those whose output stagnated have other SSEs as customers.
Lately Moris (2007) posit that small businesses have some inherent disadvantageous characteristics that will require that they be provided with public support. The basic challenges faced by small business include:
a) Poor record keeping and inefficient use of computerised accounting information (Berryman 1982; Walton 2000; World Bank 1978). Also, Byron and Firedlob (1984) posited that SMEs owners/managers lack the technique for using financial statements or simply are unaware that they can use them to support their financial and other business decisions.
b) Inadequate managerial ability resulting from huge knowledge gaps. Most promoters of small and medium businesses do not know how to make and use computerised accounting information (Abdurasheed et al., 2012)
c) Weak financial capacity to undertake research and development or costly support service such as business development service (BDS). These could make such business vulnerable to stunted growth and eventual failure.
d) Poor credit rating by financial institutions induced by poor financial strength, poor record keeping or the absence of adequate accounting system that could produce computerised accounting information needed by these institution for granting loans.
e) Inability of some small business to hire and pay qualified accountants
f) Poor financial control which makes room for fraudulent activities that affect the survival of small businesses.
g) Lack of business connection resulting from inability of the entrepreneur to foster good relationship with customers and creditors.
To add to the foregoing, empirical studies has revealed that a paramount inhibiting factor affecting the development of small business is their failure to explore the information resource embedded in an effective, efficient and standardize computerised accounting information system (Okoli, 2012). Ismail and King (2007) opined that SMEs in sub-Saharan Africa have not developed their AIS system to optimal level whereby they can enjoy the full benefit of it. Naruanord (2003) posited that although most SMEs, prepare account for statutory purpose, many fail to use these reports. He argued that SMEs owners/managers either lack the technique for using financial statement or simply are unaware that they can use them to support their financial and other business operations.
He further argued that, poorly prepared computerised accounting information render most SMEs unable to evaluate their own financial situation, or to demonstrate viability and/or to facilitate loan financing. This situation causes improper financial decisions and ends up with low performance and high failure rate. World Bank (1978) cited in Nuranard (2003) stated that poor or inadequate record keeping 0f computerised accounting information make it difficult for financial institutions to evaluate potential risk and returns of SMEs, thus making them unwilling to lend to SMEs.2.5 Empirical Review
The consideration of small and medium enterprises as a means for inducing economic growth and alleviating the high rate of poverty in the country by providing gainful employment to the Ghanaian populace has drawn the attention of a number of researchers to the sub-sector.
Oko and Uzoka (2012) carried out a study on the role of computerised accounting information in the survival of small scale business in Warri-Nigeria, which employed the use of chi-square statistical technique to analyze the data. The findings of their work showed that the success of small scale business enterprises depends greatly, but not solely, on computerised accounting information. Okoli (2012), worked on the use of Computerised accounting information of an Aid to management decision making, using the analysis of variance model (ANOVA) to analyze collected data. Her findings showed that a good accounting system result in higher profit margin over the years, thus concluding that weak accounting system should be eradicated.
Also, Abdurasheed et al. (2012) carried out a study on accounting principles of small enterprises in Ilorin metropolis of Kwara State in Nigeria. The least square linear regression model was employed in the study to test formulated hypothesis, which was run on statistical package for social science (SPSS). The findings of the study showed that accounting records has great influence on the effective operation of small businesses and thus recommended for the use of good accounting practice by small businesses. In relation to this, is the work of Nurannard (2012) on the use of financial information in financial decision of SMEs in Thailand His studies revealed that SME performance is influence by
i. demand for products
ii. management
iii. experience in a particular industry
iv. capital invested
v. Record-keeping etc.
Other works on the research variable include; that Osilimehin et al; (2012), on the challenges and prospects of Micro and small scale enterprises in Nigeria which revealed that financial constraint and lack of management skill hamper the efficient performance of micro and small scale enterprises in Nigeria. Shanker, (2012) carried out a study on the advantages of computerised accounting information to small business. His study revealed that computerised accounting information is beneficial to small business in several ways such as; provision of reliable data on business operation, facilitating business decision making, and aiding control of business activities.
Micholls and Homes (2013) carried out a study on an analysis of the use of computerised accounting information by Australian small business, by conducting a survey on small businesses within the country. The study revealed that most small business within the industry do not prepare and make use of computerised accounting information prepared in accordance to standard accounting practice.
Worthy of note also is the work of Gibson and Wallschutzky (2013) which carried out a study on the use of computerised accounting information in decision making in small firms, using structured small business owners for a twelve months period, found that few of the participating firms identified access to computerised accounting information as important when making strategic decisions. The study also revealed that some small firm owners/managers use some business information for routine control decision.
However, the resulting gap from the above analysis is that the extent to which the utilization of computerised accounting information influence the development (in terms of improved profitability) of SME has not been empirically assessed, thus inducing the researcher to empirically examine the usefulness of computerised accounting information to the development of small and medium scale enterprises.
2.5.1The Role of Computerised accounting information on the Improvement of the Performance of Small and Medium Enterprises in Ghana A careful review of related literature on the problem under study shows extensive emphasis on the relevance of computerised accounting information to the activities of small business and consequently, its survival and development. It is particularly useful to small business activities such as; inventory control, resource allocation, monitoring and control, evaluation of performance etc.The use of computers is time-saving for businesses and all financial information for the business is well organized (Baren, 2010).
A Computerised Accounting System enables businesses to stay organized. When information is entered into the system, it makes finding the information easy. Employees can look up any financial information whenever it is needed. There is less room for errors as only one accounting entry is needed for each transaction rather than two (or three) for a manual system. The accounting records are automatically updated and so account balances (e.g. customer accounts) will always be up-to-date.
Storing information is vital to a business. After information is entered into the system, the information is stored indefinitely. Companies perform backups on the system regularly to avoid losing any information. The introduction of Computerised Accounting Systems provides the ability to see the real-time state of the companys financial position.
Computerised Accounting Systems allow companies to distribute financial information easily. Financial statements are printed directly from the system and are distributed internally and externally to those needing the information. Reports can be produced which will help management monitor and control the business, for example the aged debtors analysis will show which customer accounts are overdue, trial balance, trading and profit and loss account and balance sheet. In effect, Computerised Accounting information enable financial statements to be prepared and presented to meet the relevance and faithful representation criteria of financial statements.
Glatier et al. (2011) argued that computerised accounting information could help a businesss manage short-term problems in areas such as costing, expenditure and cash flow by providing information to support monitoring and control. Okoh and Uzoka (2012) posited that management of personnel, use of computerised accounting information and financing options are areas that must be taken seriously for effective management and survival of small businesses.
Abdurasheed et al. (2012) also argued that small business owners and managers must be able to read between the lines of their financial statement, implying the need for adequate and comprehensive analysis and interpretation of accounts. He further opined that good accounting practices allows for creation of useful computerised accounting information that could help improve the effective operation of small and medium enterprises.
Narunard (2003) posits that the relevance of computerised accounting information to small business performance lies in its use to assess the profitability of alternative course of action, measure performance and evaluate the position of the enterprise in terms of profitability, liquidity, solvency and leverage. Computerised accounting information can be used to improve SME performance by facilitating proper financial decisions. For instance, different capital structures cause different degrees of financial risk; difference financial plans affect SMEs performance differently. Thus proper accounting is a key to small business success (Wichman, 1983). Oko and Uzoka (2012) argued that without proper knowledge of accounting one will find it difficult to provide adequate administrative management that will ensure the survival of small businesses.
He outlined the role of computerised accounting information on the improvement of the performance of small scale firms under the following heads;
i. As a tool for control: Book-keeping aspect of accounting helps guard against petty dishonesty and incompetence commonly displayed by employees of small scale enterprises. Business enterprises normally have assets like; cash, stock of goods, furniture, buildings, machinery etc thus making it imperative for a proper accounting system to be installed to ensure that each and every item is accounted for with a view to reducing opportunities for theft and mis-appropriation and to ensure economic expense as the employees knowing that every item has been recorded and will be accounted for will be careful in handling all business properties.
ii. Assistance in credit dealings; most of todays businesses are conducted on credit basis. A trader, more often than not finds himself with two alternatives either to extend credit facilities to his customers or not to. As a result the firm need to keep track of its debtors. This necessitates the use of accounting technique such as the debtors ledger to keep track of such customers that owe the firm. This improves the firm by increasing sales and reducing incidence of financial losses from credit dealings.
iii. Assisting in taxation matters; The government charges taxes of various types e.g. Gift tax, Value Added Tax, Income tax ,Capital gains tax, custom duty, excise duty etc to be able to calculate and pay the correct amount of tax due, an entrepreneur must know his exact sales figure hence the need for accurate accounts. Absence of proper accounts can easily lead to over taxation a situation which can be very unpleasant.
Iv. Assistance in determination of profit; the ultimate objective of all business undertakings is to make profit. It would be difficult to ascertain whether a business is making profit or loss without the help of complete up-to-date accounts. Also small business owner who depend on their business as a source of livelihood might end up eating into their capital if they dont know the profitability of their businesses. 2.5.2 The Role of Computerised accounting information in Expansion of SMEs
Empirical studies shows that computerised accounting information facilitate the expansion of SME in diverse ways. Glautier et al. (2011) opined that computerised accounting information allows for efficient and effective allocation of resources of small businesses which could lead to improved performance in the form of expansion in profit level.
Diamond et al. (2007) is of the view that computerised accounting information is vital to the expansion of small businesses as well as the expansion and diversification programmes of SMEs. It reveals availability of fund and future or forecasted profit of an investment to be embarked on, which guides expansion decisions of SMEs.
Okwoli (2012) specifically narrowed the role of computerised accounting information in expansion of SMEs to decision making. She opined that computerised accounting information is a veritable tool for making effective small business decisions that would allow for growth and expansion of such small business. Such decisions are usually based on budgets and adequate planning, which make use of accounting data like available funds, cost of investment, forecasted profits etc. Ademola et al. (2013) specifically outline the role of computerised accounting information in expansion of SME to include;
i. Sourcing of loans: Computerised accounting information reveals the performance and financial position of an enterprise and thus reveals the enterprise ability to pay back a collected loan. This makes banks and other financial institutions to request for financial statement which they study before granting a loan.
ii. Efficient and effective allocation of resources: Computerised accounting information allows for efficient and effective allocation of resources as it shows the result of each venture embarked on, thus influences investment and divestment decisions via-a-vis the profitability of such venture.
iii. Influences willingness to Invest: Computerised accounting information relates profitability of SMEs to their growth capacity and consequently influences expansion in areas that have proven profitable bearing in mind the capacity in the computerised accounting information system of such enterprises.
iv. Planning Internal Expansion: Computerised accounting information of SMEs such as sales record shows product with higher demands, thus inducing expansion in that direction. Customer order also guide manufacturing in terms of quantity or planning production schedule
v. Starting a new business: This is another aspect in which computerised accounting information plays a significant role in expansion of small businesses. It provide information such as start-up cost, starting capacity of the SME, needed working capital, forecasted profits of the SME etc which are all important factors to be considered when establishing an SME.
vi. Production of information for small business decision making and performance Assessment: Computerised accounting information of SMEs such as sales record, operating cost, profitability etc provides information needed for the assessment of the performance of SMEs, thus influencing decisions such as; whether to continue a particular business, increase capacity or whether to close a particular business and move to other business that might be more lucrative. 2.6Creating Computerised accounting information The creation of computerised accounting information involves a series of process. This process has been captured in the concept of accounting cycle. Mergs et al. (2001) defined an accounting cycle as the sequence of accounting procedures used to record, classify and summarise computerised accounting information in financial reports at regular intervals. It involves the accumulation of the effect of business transactions via accounting records, the classification of such records with the use of ledgers and journals and the summarisation of data captured on these transactions with the use of financial statements such as the income statement (e.g. profit and loss account), cash flow statement, balance sheet etc. According to Meigs et al. (2001) accounting cycle generally consist of eight specific steps viz;
i. Journalize (record) transactions
ii. Post each journal entry to the appropriate ledger account
iii. Prepare a trial balance
iv. Make end-of-period adjustments
v. Prepare adjusted trial balance
vi. Prepare financial statements
vii. Journalizing and posting closing entries
viii. Prepare an after-closing trial balance.
However, the creation of computerised accounting information does not stop at the preparation of financial statements. Such statement needs further processing via analysis and interpretation that will aid the provision of computerised accounting information in a form that its users would derive maximum utility from its consumption. Such analysis and interpretation has to be linked to the operation of a business in a manner that could reveal effects on the operations of a business in terms of evaluation of performance, thus increasing the utility content of such information. In view of these, the creation of computerised accounting information involves the following processes or stage;
i. The identification of economic and financial events from source via the instrumentation of source documents such as invoices, receipts, debit notes, credit notes, vouchers cheques etc.
ii. The capturing of such events as they occur via the use of subsidiary books such as the sales day book; purchase day book, cash receipt book, cheque payment book, petty cash book, general journal, nominal ledger, debtors ledger, creditors ledger etc.
iii. Preparation of ledger accounts such as expense account, asset account, liability account etc which is the ultimate destination of all entries recorded in the subsidiary books. It shows the result of transactions and classifies economic transactions as well.
iv. Preparation of trial balance to test arithmetical accuracy of entries in the ledgers.
v. The preparation of end of year accounts and statement to show the result of business operations at the end of an accounting period.
vi. The analysis and interpretation of such end of year statements to ascertain the position of a business in terms of profitability, liquidity, solvency, leverage, etc via the use of accounting ratio. These give more information on growth and survival prospects of a business.
vii. The presentation of such information in a form that would be easily understandable by users
viii. The communication of such information to users such as owners, managers employees and any other stakeholder that has an interest in the business.2.7Importance of Small Business to the Ghanaian Economy
A thorough review of empirical works on Micro small and medium enterprises will show that so much emphasis has been placed on the importance of SMEs to economic development of a nation. It is interesting to note that small scale enterprises make better use of scarce resources than large scale enterprises. Research in Ghana and many other countries have shown that capital productivity is often higher in SMEs than is the case with LSEs (Steel, 1977; Child 1971). The reason for this is not difficult to see, SMEs are labour intensive with very small amount of capital invested. Thus, they tend to witness high capital productivity which is an economically sound investment. Thus, it has been argued that promoting the SME sector in developing countries will create more employment opportunities, lead to a more equitable distribution of income and will ensure increased productivity with better technology (Steel & Webster, 1991). Due to their flexible nature, SMEs are able to withstand adverse economic conditions. They are more labour intensive than larger firms and therefore, have lower capital costs associated with job creation (Anheier & Seibel, 1987; Liedholm & Mead, 1987; Schmitz, 1995). SSEs perform useful roles in ensuring income stability, growth and employment. Since SMEs are labour intensive, they are more likely to succeed in smaller urban centres and rural areas, where they can contribute to the more even distribution of economic activity in a region and can help to slow the flow of migration to large cities. Because of their regional dispersion and their labour intensity, the argument goes; small scale production units can promote a more equitable distribution of income than large firms. They also improve the efficiency of domestic markets and make productive use of scarce resources, thus, facilitating long term economic growth.
Naruanard (2003) argued that SMEs play important role in a nations economy by virtue of the fact that they comprise majority of businesses in the nation and contribute substantially to employment. He added that SMEs generate employment, add improve labour skills and have linkages with large enterprises. Osotimehin et al. (2012) opined that SMEs are catalyst in the socio-economic development of any country. They are veritable vehicle for the achievement of national macro-economic objective in terms of employment generation at low investment cost. He further argued that SMEs contribute substantially to GDP, export earnings, per capital income and output. It also encourage the development of indigenous entrepreneurship, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization that are considered to be critical in the area of engineering economic development (Tolentino, 1996; Oboh, 2004; Odeh, 2005).
The importance of the small scale enterprise sector in the economic development and growth of low income countries has been widely recognised and need not be overemphasised. This sector has the potential for the future growth of both employment and incomes as well as in alleviating urban and rural poverty. In order for the sector to flourish, the playing field has to be levelled in terms of policies and strategies that are required to assist the sector attain its full potential.
To wrap it up, Aborode 2005 cited in Okoh & Uzoka (2012) posited that the importance of small scale enterprises can be seen in the vital role, which they play in the development of the economy which includes;
1) Source of employment; over 70% of employed people in Africa are in production in small businesses
2) Utilization of local raw materials, the raw materials used in production in small businesses are obtained easily within the country. Money is not spent on the importation of raw materials into the country thereby reducing the amount of foreign exchange paid to foreigners
3) They provide an effective means of stimulating indigenous entrepreneurship
4) Through their wide dispersal, they provides an effective means of mitigating rural/urban migration and resource utilization
5) By producing intermediate products for use in large-scale enterprises, they contribute to the strengthening of industrial inter-linkages
6) They also maintain a competitive advantage over larger enterprises by serving dispersal local markets and produce various goods with low scale economies for niche markets. 2.8 Summary of the Chapter
The review of relevant literatures on the variables of the study viz; computerised accounting information and small business development reveals some striking issues relating to the aforementioned variables. The review shows that, although small and medium scale enterprises constitute a major avenue for the development of a nation's economy, it has been faced with many setbacks that limit its ability to survive, grow and consequently impact on the economy of a country. This is evidenced in the fact that several small business established over time have failed to survive (kpelei 2009). However majority of research attempt to show the link between these phenomenon and accounting has centred on the accounting practice of such firms. A particularly effort has not been made to reveal how accounting impacts on small businesses vis-a-vis their development and this constitute a gap on which knowledge has to be created. Also, to uncover the extent to which accounting could help reduce the rate of small business failure and influence their performance positively. The reviewed literature shows that computerised accounting information plays some vital role in improving the performance of small and medium businesses.
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter would present the method that was employed in the study. This dealt with the research design, target population of study, sample selection and design, data types, sources and method of data collection, validity and reliability of data instrument, specification of variables employed, and specification of model for data analysis, method of data analysis and limitation of the study design.
3.1 Research Design
The survey design was employed for the study and this comprised both analytical and descriptive types. The survey was considered appropriate because it is ideal when there is the need to determine the objective, opinions, impressions and values of a target group. This method enables the making of generalizations about a population based on responses drawn from the population. It is also suitable for large sample size (Frankel & Wallen 2003).
3.2 Sample Selection and Design
A sample is a limited number of elements selected from a population which is a good representation of the target population(Akpa 2011).However, the non-random sampling technique was used to select a convenient sample of forty(40) SME's comprising twenty(20) small business and twenty(20) medium businesses. This sample size was selected base on accessibility and availability of a working accounting system. The use of a large sample size of selected 40 SMEs was induced by the need to reduce possibility of biased that may result from the use of non-random sampling technique (see Appendix I for list of selected SMEs)3.3 Research Instrument
The main instrument for the data collection for the study was a structured questionnaire. According to Frankel & Wallen (2003), a questionnaire is a formalized set of questions for obtaining information from respondents. The overriding objective is to translate the researchers information needs into a set of specific questions that respondents are willing and able to answer. While this may seem straightforward, questions may yield very different and unanticipated responses. A questionnaire is the main means of collecting quantitative primary data. A questionnaire enables quantitative data to be collected in a standardized way so that the data are internally consistent and coherent for analysis. The questionnaire is considered to be appropriate in view of the level of intellectual capacity of the respondents who can provide more answers. The questionnaire affords not only wider geographical coverage than any other technique, but also reaches individuals who are normally difficult to contact. A questionnaire is more adequate in situations in which the respondents have the opportunity to check his or her information. There are some weaknesses associated with the use of a questionnaire. The format of questionnaire design makes it difficult for the researcher to examine complex issues and opinions. Even where open-ended questions are used, the depth of answers that the respondent can provide tend to be more-limited than with almost any other method of research. This makes it difficult for a researcher to gather information that is rich in depth and detail. Again, the researcher hopes the questions asked mean the same to all the respondents as they do to the researcher. This is a problem that can - to some extent - be avoided by conducting a Pilot Study prior to conducting the real survey. The questionnaire was developed based on the research questions and in sections. Section A was based on personal data (Bio data) of respondents and section B was base on questions that will enable the researcher to collect data on the variables needed to complete the research. The questionnaire consisted of both open and closed-ended questions. The closed-ended questions enabled more flexibility in filling in. The open-ended on the other hand allowed opinions and recommendations and for triangulation. Respondents were asked to select options provided that best describe their responses. This was done to elicit the appropriate responses from the respondents. 3.4 Validity and ReliabilityThere was the need to ensure reliability and validity of the data collection instrument. To ensure that the research instrument must measure what is it supposed to measure, the questionnaire was designed to reflect the research questions the researcher intended to find answers to. There was the need to ensure that the research instrument produce consistent result. As a result, the questionnaire was tested on five (5) SME's randomly selected from Accra metropolis. The pre-testing enabled the researcher to check the wording and sequence of questions, the length of the questionnaire, clarity of instruments, and effectiveness of the cover letter. This enabled the researcher to correct any inconsistencies (unreliability) and inaccuracies in the instrument that was used in the actual survey. Furthermore, very simple language was used in wording the questions to facilitate easy understanding by respondents. This ensured that the instrument elicit responses to measure variables that it is inte