The Effect of Bookkeeping on the Performance of Small and Medium Size Enterprises in Buea
Department: Accounting
No of Pages: 67
Project Code: ACC2
References: Yes
Cost: 5,000XAF Cameroonian
: $15 for International students
ABSTRACT
This
study was based on the relationship between bookkeeping and the performance of
Small and Medium Sized Enterprises, case study of the Buea Municipality.
Since
the advent of formalized bookkeeping practices in the 18th centuries and
earlier, its practice has seen to offer businesses around the globe with
prospects of growth and scalability, its adoption and usage by some SMEs (Small
medium size enterprises) operators is slow and ineffective.
The
study made use of the descriptive and exploratory research designs and was
conducted with the administration of 85 questionnaires to randomly selected SME
operators. Data obtained was analyzed with the use of tables, frequencies,
percentages and descriptive statistics.
The
study reported a significant relationship between bookkeeping and the
performance of SMEs. The main recommendations of the study were for regulatory
and economic supervisory bodies to create incentives, trainings, and policies
to equip and encourage SMEs operators to adopt and use proper bookkeeping
systems in their businesses.
We
ended up by recommending further researchers to do research in other towns, as
Buea is not representative of Cameroon.
CHAPTER ONE
INTRODUCTION
1.1 Background of the
Study
Bookkeeping
began because people needed to record business transactions, know if they were
being financially successful, and know how much they owned and how much they
owed (Wood & Sangster, 2005). It is known to have existed in one form or
another since at least 3,500 BC (records exist which indicate its use at that
time in Mesopotamia).
There
is also considerable evidence of bookkeeping being practiced in ancient times
in Egypt, China, Greece, and Rome. In England, the ‘Pipe Roll’, the oldest
surviving bookkeeping record in the English language, contains an annual
description of rents, fines and taxes due to the King of England, from 1130 to
1830.
No
standard system for maintaining accounting records had been developed before
this because the circumstances of the day did not make it practicable for
anyone to do so – there was little point, for example, of anyone devising a
formal system of accounting if the people who would be required to ‘do’
accounting did not know how to read or write.
One
accounting scholar (A. C. Littleton), suggested that there were seven key
ingredients required before a formal system could be developed. This existed
when Paciolo wrote the treatise (Wood & Sangster, 2005).And this ingredient
is as follows;
Private property.
The power to change ownership exists and there was a need to record the
transaction. Capital Wealth is productively employed such that, transactions
are sufficiently important to make their recording worthwhile and
cost-effective, Commerce.
The
exchange of goods on a widespread level, the volume of transactions needs to be
sufficiently high to motivate someone to devise a formal organized system that
could be applied universally to record transactions, Credit.
The
present use of future goods, cash transactions where money is exchanged for
goods, do not require that any details be recorded of who the customer or
supplier was. The existence of a system of buying and selling on credit (i.e.
paying later for goods and services) led to the need for a formal organized
system that could be applied universally to record credit transactions.
Writing.
A mechanism for making a permanent record in a common language, writing had
clearly been around for a long time prior to Pacioli but it was, nevertheless,
an essential element required before accounting could be formalized.
Money.
The need to be a common denominator for exchanges, so long as barter was used
rather than payment with currency, there was no need for a bookkeeping system
based upon transactions undertaken using a uniform set of monetary values.
Arithmetic.
As
with writing, this has clearly been in existence far longer than accounting. Nevertheless,
it is clearly the case that without an ability to perform simple arithmetic,
there were no possibilities that a formal organized system of accounting could
be devised.
When
accounting information were being recorded in the Middle Ages, it sometimes
simply took the form of a collection of invoices (which each show the details
of a transaction) and receipts (which each confirm that a payment has been
made) which were given to an accountant to calculate the profit or loss of the
business up to some point in time.
This
practice persists to this day in many small businesses. The accountant of the
middle ages would be someone who had learnt how to convert the financial
transaction data (that is, the data recorded on invoices and receipts, etc.)
into accounting information.
Quite
often, it would be the owner of the business who performed all the accounting
tasks. Otherwise, an employee would be given the job of maintaining the
accounting records. As businesses grew in size so it became less common for the
owner to personally maintain the accounting records and more usual for someone
to be employed as an account clerk.
Then,
as companies began to dominate the business environment, managers became
separated from owners – the owners of companies (shareholders) often have no
involvement in the day-to-day running of the business. This led to a need for
some monitoring of the managers. Auditing of the financial records by
accountants became the norm and this, effectively established the accounting
profession.
The
first national body of accountants, The Institute of Chartered Accountants of
Scotland, was formed in Scotland in 1854 and other national bodies began to
emerge gradually throughout the world, with the English Institute of Chartered
Accountants being formed in 1880 and the first US national accounting body
being formed in 1887.
1.2 Statement of the
Problem
The
importance of proper record keeping in any business setting cannot be over
emphasized. From the very large corporations, to the very small-scale dealers
even in the informal sector. SME owners and managers seem not to give the
proper attention to proper record keeping that it deserves.
It
becomes difficult for these enterprises to obtain finance, prepare and declare
tax returns, track accurate performance, plan for growth and scalability.
Studies on SMEs have disclosed that about 60% of small businesses fail within
the first three years due to management inefficiencies brought about by poor
record keeping. Further studies indicate that a significant element in the
failure of many businesses is due to inefficient or absence of book keeping
(Chelimo & Sopia, 2012).
There
is no requirement that records be kept in any particular way. As long as
records accurately reflect the business’s income and expenses, there is a
requirement, however, that some businesses use a certain method of crediting
their accounts: the cash method or accrual method.
Depending
on the size of the business and amount of sales, one can create their own
ledgers and reports, or rely on accounting (Abdul-Rahamon & Adegare, 2014)
(Williams et al 1999).
Doing
business in Cameroon reported on Thursday 31, OCTOBER 2012 in an article on
‘New Financing Windows for Cameroonian SMES, that according to new release from
the African Guarantee Fund (AGF) FOR SMEs, inaccessibility of finance is a
major obstacle to small business set up, growth and development, with only 20%
of SMEs receiving a credit line from a financial institution in relation to a
$100 million partnership project with GAICAM (Go Africa Initiative Cameroon) to
equip and empower SMEs in Cameroon.
What
is problematic about this is the mere fact that most Cameroonian business men
and women in this category will operate their businesses without any proper
record keeping and will only start adopting hasty strategies to develop assumed
and fabricated financial records in order to benefit from such financial
incentives.
According
to Green et al (2002), financial providers are unlikely to give funds to an
enterprise which they do not perceive to be sound. Nieuwenhuizen and Koon
(2003) stated that the financing criteria for SMEs depend on the credit
worthiness of the applicant, where Bookkeeping is something these financial
providers find worth considering.
The
problem faced in the Buea municipality also focuses on the fact that so many
Small and Medium Size Enterprises do not do record keeping or do not maintain a
proper bookkeeping system. Therefore, this research posts the following
questions as seen below
1.3 Objective of the
study
1.3.1 Main objectives
- The main objective of the study is to assess the relationship between proper bookkeeping and the performance of small and medium sized enterprises.
1.3.2. Specific
objectives
- To determine the bookkeeping systems used by Small and medium size enterprises in Buea.
- To determine the main challenges SMEs in Buea face in consistently practicing proper bookkeeping.
