THE IMPACT OF POOR ACCOUNTING SYSTEM IN SMALL SCALE INDUSTRIES

CHAPTER ONE

INTRODUCTION

1. 1. BACKGROUND

Man has from time immemorial been struggling indefatigably to find absolute solution to his problems. Among this problems are economic, social, political and cultural economic problem is the most significant.

          The major problem of all societies at all times was succinctly attempted it by fashioning crude tools out of the locally available wood and other materials to increase his productivity to satisfy his basic psychological needs in a large measure.

          Universally, economic development of any society is primary  based on a solid industrialization programme. This conception has been seriously laid credence by the numerous powers and influence which industrialized nation like U.S.A west Germany, Japan, USSR weld in the space of international  policies and in all other world affairs.

          It is disheartening to note that in most developing countries of the world, small scale industries have been very often treated in economic policies, as an inevitable background and lagging sector of the economic to be assisted merely for social reason but not as a valid opportunity for economic development. Consequently, upon this other perception of little attention has been rapid to the tremendous benefits to be derived by elevating existing small firms to attain their maximum capacity to stimulate the establishment of new ones. The argument is not that small scale industries are the ultimate panacea ot national development but rather that development policies and economic planning should be based on a neutral combination of large medium and small firms. The principal economic importance of small scale industries is in their responsiveness to changes and since changes is a prerequisite factor for economic growth, it is highly desirable that more fund rather than few should be channeled to small scale industries.

          Martin O. Ijere, while enumerating the problem of small scale industries made mention of limited finance. This finance being the main resources small scale industries utilize in order to exist, needs to be preserves. In doing this, proper accounting system should be installed so as to make sure that every item or transaction that takes place in the business activities of small scale industries will be accounted for. This will help in the achievement of most of the government objectives, since small scale industries contribute in n o small way to the national development.

1. 1. STATEMENT OF THE PROBLEM

We are aware that there are different methods of doing one thing as there are different types of people with different orientation. This also affect the discipline of accounting and specifically small scale industries where opinion abound that there are paucity of accounting records. Consequently, this study wish to address the following problems.

• Could adequate accounting record be gotten in small scale business organization?

• Does small scale business organization adhere to legislative and standard observed in keeping accounts?

1. 1. THE OBJECTIVE OF THE STUDY

It has been stated that the first step towards profitability management of any small scale industry includes adequate record keeping, detailed knowledge of expenses, income and profit or loss. This can be deduced from the fact that certain information provided by the accounting records for instance, is used in profit planning and expenses control and the interpretation of finance statement.

          It is not unusual for a small scale industry to have adequate sales and still fail because of inadequate financial control. This financial control which is part of good accounting system is vital to the success of any small scale industry.

          Small scale industries having been described as the bedrock of economic development of Nigeria need to keep reasonable record of their transaction. As noted by A.O Ofonagoro “most small industries in Nigeria keep inadequate records or no record at all of their operation.”

          It therefore becomes necessary to explore into the reasons behind this uncared for attitude of Nigeria small scale industrialist towards keeping of accounting record or documentation of their operation.

          This study identified the major problems of accounting procedure among small scale industries and the causes responsible for these problem.

          Finally, the study aims at correcting the erroneous belief among small scale industrialist that record keeping takes time than it is worth and reminds them that is the long un the time spent in keeping adequate records actually saves time that would otherwise be used to secure essential information required for measuring progress, paying tax and making critical policy decision. The result from this system will be more accurate and the efficiency and profitability of the business will tend to increase where decisions are based on reliable information that is available through a system of adequate records and also to prefer possible recommendation that would enhance the utility of accounting records kept in small business organization.

1. 1. SIGNIFICANCE OF THE STUDY

The study will be of immense benefit to a number of individual, firms and government.

• To individual, the study will serve as a research literature  to student in the department of accountancy who may decide to research more on the topic

• To firms, it will let the small scale industries know the proper accounting system and if this should be maintained by them, more profit will be realized. This wills in effect, increase the dividend distributed to the shareholders. That is increase national income which is a feature of economic development.

• To government, the revenue of the government will also be increased through the taxes collected on the profit the small scale industries make. The government will also know from this study, how it can help the small scale industries. The success will lead to both national and economic development.

1. 1. SCOPE AND LIMITATION OF THE STUDY

Poor accounting system consist of different elements the researcher does not  consider the computer accounting system. The scope is limited to manual accounting system.

1. 1. DEFINTION OF TERMS

Small scale industries

Many authorities have defined small scale industries in various ways. For the purpose of this research, the most recent definition given by national council of industry will be used. It is defined as an industry whose total project cost excluding cost of land but including working capital does not exceed #5miilion.

Manufacturing industries

These are those industries engaged in manufacturing activities through input of raw material, technical as well as human resources to produce finished products, which are often referred to as their output.

Service industries

These are industries that engaged in rendering serving of various types to people. Such service industries include, tailoring industry, motor and motor cycle repairing, hair dressing salons, dry cleaning industries

Agro based processing industries

These cover such industries as rice milling industry cassava processing, palm oil processing industries and poultry industry.

          These categories of industries engaged themselves either in the production or processing of agriculture products.

Accounting

Many authorities have defined accounting in different way for the purpose of this research, the public accountant will be used. According to the institute, accounting is “the art of recording, classifying and summarizing in a significance manner and  in terms of money transaction and event which are, in part at least of financial character and interpreting the result thereof”.