The Relevance Of Book Keeping On The Performance Of SMEs In The Buea Municipality
Department: Accounting
No of Pages: 71
Project Code: ACC6
References: Yes
Cost: 5,000XAF Cameroonian
: $15 for International students
ABSTRACT
Knowledge
and skills in bookkeeping is one major factor that impacts positively on
sustainability and growth of SMEs, failure to record financial transactions
(bookkeeping) leads to collapsing of the business within few months of its
establishment.
This
study seeks to examine the relevance of book keeping on SMEs in the Buea
Municipality, the study adopted survey research design with a total sample size
of 50 SMEs in the Buea municipality, a stratified random sampling technique was
used for study.
Primary
data was collected for the study using a 50 questionnaire as method of data
collection. Also data was analyze using SPSS version 21 found, data was equally
presented in tables and chart.
The
result of the finding revealed SMEs operator lack book keeping knowledge, high
cost of hiring a qualified book keeping, educational training should be done by
the operators of small businesses, furthermore, it was discovered that book
keeping has a significant effect on performance of SMEs in the Buea
municipality.
The
study conclude that it was concluded that SMEs operator lack knowledge in book
keeping. The study also recommended that that SMEs operator lack book keeping
knowledge, high cost of hiring a qualified book keeping, educational training
should be done by the operators of small businesses.
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
Cameroon
sanguinity to achieve her optimum goal of reaching vision 2035 of becoming an
emerging nation is the limit. With this, small and medium-sized enterprises are
key in reaching that destination since it contributes to the economy as well as
allows a path to the decline of unemployment.
Small
and medium-sized entities (SMEs) play important roles in the economic growth of
a nation. There has been a growing concern for supporting the operations of
Small and Medium-Scale Enterprises (SMEs) among governments (Amoako, 2012).
Given
their contribution to national growth and economic development, it is believed
that small and medium-scale enterprises (SMEs) are the backbone of many
economies across the globe (Alhassan et Muazu, 2014; Okoli, 2011) growth and
sustainable development of every nation, (Moore et al., 2008).
There
is no universally accepted definition of Small and Medium Enterprises (SMEs).
This is due to the fact there are a large number of micro, small and medium
enterprises which differ in their sector of operation, activities and in the
environment where they develop.
Most
definitions of Small and Medium Enterprises (SME) include ranges of assets or
turnover per year and the number of employees. Usually, the definition follows
one or more of the following approaches: Criterion approach 6, Institutional
approach 7 and Typological approach 8 (Mmeti,2020).
The
success or failure of SMEs is contingent on their financial viability and one
of the most common problems facing such firms is their ability to secure
sufficient cash flow and working capital to remain profitable.
It
was noted as one of the top problems facing SMEs as long ago as the Bolton
Report in the early 1970s (Bolton, 1971). This has been a recurring theme in
the small business literature since that
time
(Kennedy, Tennent and Gibson, 2006).
Poor
finance management has been posted as the main cause of failure on the MSEs
(Longeneter et al 2006). Bowen (2009) observes that there is a strong
relationship between business performance and the level of training in the
business management especially in business finance record keeping.
Business
management entails keeping proper records of the business transactions.
Knowledge and skills in bookkeeping is especially one major factor that impacts
positively on sustainability and growth of SMEs.
Failure
to record business financial transactions (bookkeeping) leads to collapsing of
the business within few months of its establishment (Muchira, 2007). In
essence, recordkeeping is one thing an entrepreneur cannot afford to ignore.
Research
has shown that in any business, recordkeeping is the first step of the
accounting process, which also includes classifying, reporting and analyzing
the business financial data. It involves organizing and tracking receipts,
cancelled checks and other records generated by financial transactions.
Bookkeepers
chronologically record all transactions: cash disbursements, cash receipts,
sales and purchases, and others in a journal and post the journal entries to a
general ledger of accounts, which is essential for preparation of monthly
financial statements.
This
is imperative for a profitable business. Further, research has in the past
shown that in business management, proper keeping of records of all business
transactions is vital for the success of the business (Muchira, 2007).
In
addition, Butler (2009) asserts that without accurate and complete records of
business transactions the business is doomed to fail at its onset. According to
Muchira (2007) businesses are different, there are many specific types of
detailed records that may need to be kept.
Some
examples of records one should keep include: cash book petty cash book, order
notes and invoices, copy sales invoices, details of any other business income received,
details of any private money brought into the business, till rolls or other
form of electronic record of sales,
details
of any other income, any cash taken out of the till to pay small business
expenses, bills and invoices for purchases and expenses, a record of stock on
hand at the end of the year and all bank and building society statements, pass
books, cheque stubs and paying-in slips which include details of business
transactions.
According
to Mmeti (2020) Cameroon, the official definition of SME is based on the first
two approaches identified earlier, the criterion and institution approach.
Thus, in the country, there are four main definitions of SME. These definitions
are given by the investment law, FOGAPE BEAC and the economic and social
concern.
According
to the National Institute of Statistics (NIS) of Cameroon (2009 and 2017), over
95 percent of Cameroonian enterprises are small businesses. 70 percent of job
creation in Cameroon and over 90 percent of Cameroon's national economic fabric
are of the responsibility of small businesses which contribute more than 34% of
the Gross Domestic Product (GDP).
To
promote and support this category of businesses, the government of Cameroon created
the Ministry of Small and Medium Size Enterprises and enacted the law N°
2010/001 of April 13, 2010 as modified by the law N° 2015/010 of the 16th of
July 2015 on the promotion of Small and Medium- size Enterprises (SMEs).
This
testifies the importance of these firms for the Cameroonian economy. The
essential roles of SMEs can best be sustained through the implementation of
fundamental financial and accounting practices (Schwenk & Schrader, 1993).
However,
it has been reported that many SMEs failed to keep adequate accounting records
to generate the much needed accounting information that owner-managers and
other users require for their decision making purposes which led to major
problems (Howard, 2009; Madurapperuma, Thilakerathne, & Manawadu, 2016).
Larson
& Clute, (1997) further reported of weak internal accounting systems of
some SMEs which resulted in poor planning, weak expense control, low collection
of accounts receivable, poor financial condition, and inadequate information
for decision making purposes.
1.2 Statement Problem
Little
is known about the relevance of book keeping practices in SMEs, the importance
of book keeping among SMEs and the challenges SMEs face in preparation of
accounting records. Earlier studies have suggested that book keeping is at the
heart of any external interaction with the SMEs be it access to finance or
eligibility for assistance.
That
is, credit worthiness and growth potentials are all embedded in bookkeeping
records of enterprises. It is theoretically plausible to expect some positive
effects of proper book keeping and enterprise performances such as
profitability and growth.
Book
keeping frightens some business owners, keeping record of income and
expenditure helps an owner of business to keep proper track of financial
transactions (Olufemi& Oladimeji,2019). Dawuda and Azeko, (2015) noted that
poor book keeping or non-availability of financial records have consequences of
mismanagement of resources and poor cash management.
These
have led to the collapse of many SMEs. Application of accounting records
seriously influences the achievement of a firm’s objectives (Olufemi&
Oladimeji,2019). Some business owners in are still not aware of the importance
and benefits of proper book keeping (Abayomi & Adegoke, (2016).
In
Cameroon, some SMEs are forced to prepare their financial records because they
want to obtain tax clearance certificate, without which they cannot bid for
government contracts. Also, some SMEs prepare their accounts because they want
to obtain bank loans. Poor book keeping makes it difficult to distinguish
between business transactions and personal transactions of SME owners (Van
Aardt et al. 2008; Rankhamise, 2010).
Many
business owners and managers use the assets of SMEs for their personal
benefits. According to Aremu and Adeyemi (2011), studies have shown that it is
difficult for SMEs to access loans from financial institutions because of lack
of proper financial records as a requirement (Amoako, 2013).
Except
for statutory requirements, SMEs rarely consider sound book keeping, yet the
poor and ineffective book keeping has led to the collapse of some of the SMEs,
failure of SMEs to keep proper records are one of the reasons for their
failure.
The
complex nature of the processes involved in the double entry bookkeeping system
is one of the important challenges facing this method of keeping books. The
owner of a business who does not have any background in accounting, the double
entry system can seem to him like learning a whole new language.
Terminology
such as "debits" and "credits" replace simple words like
"subtract" and "add," causing perplexity. Determining at
what instance to debit an account and what corresponding account to credit can
be difficult, and can throw the novice bookkeeper for a loop (Desa, Tanden,
& Practising Law Institute, 2014).
1.3 Research Objectives
1.3.1 General research
objective
- To investigate the relevance of book keeping on SMEs in the Buea municipality.
1.3.2 Specific Research
objectives
- To examine the effect of financial statement on the performance of SMEs in the Buea municipality
- To find out the challenges faced by the SMEs entrepreneurs in recordkeeping.
- To investigate the effect of income statement on the performance of SMEs in the Buea municipality.
- To find the relationship between tax declaration and the performance of SMEs in the Buea municipality.
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