COMPUTERIZED ACCOUNTING AMONG SMALL AND MEDIUM ENTERPRISES - A CASE STUDY IN SUNYANI MUNICIPALITY.
In developing countries like Ghana, Small and Medium Enterprises (SMEs) constitute about 90% of all businesses and occupy a central part of the Ghanaian economy as the main driver in terms of its contribution to income, employment generation and ultimately economic growth. However, over the years, many SMEs have folded up shortly after their establishment due to many factors; both environmental and internal. Key among these factors is poor accounting and financial Accounting. The study therefore examines the effect of computerized Accounting among SMEs in the Sunyani Municipality. The specific objectives were: to assess the types of accounting systems employed by SMEs; to examine the extent to which SMEs use computerized accounting in their business activities; to investigate the benefits and challenges with the use of the computerized accounting system. The study adopted a case study research design. The data collected was analysed quantitatively and qualitatively. The researcher used purposive and random sampling techniques to reduce the possibility of research limitations. The primary data collected were analyzed using the Statistical Package for Social Science (SPSS) and the Excel computer software. The analyzed results are presented into graphical and descriptive representations such as tables, percentages, charts and graphics. The study found out that the form of accounting by SMEs in the Sunyani Municipality is manual. Again, the study discovered that majority of SME operators in the Municipality do not employ computerized accounting systems in their operations. It also revealed that computerization have positive effects on the operations of SMEs. Finally, the study found out that SMEs faced major challenges in adopting and implementing computerized accounting systems in the municipality. Based on the findings the study concludes that the inability of SME operators to use computerized accounting systems in their daily Accounting activities leads to negative effects on their operations. The researcher therefore recommend that for better decision making and improved performance of SMEs, the National Board for Small Scale Industries (NBSSI) should collaborate with other benevolent NGOs to set up training organizations to offer basic ICT training skills and development programme to SMEs operators at affordable cost. This will help them acquired basic ICT skills to enable them keep records of their business activities.
TABLE OF CONTENTS
TABLE OF CONTENTS vii
LIST OF TABLES x
LIST OF FIGURES xi
CHAPTER ONE 1
Background of the Study1
Problem Statement and Justification4
Objectives of the Study6
The objectives of the study are classified as general objective and specific objectives. 6
General Research Question6
Significance of the Study7
Scope of the Study7
Limitation of the Study8
Organization of the study9
CHAPTER TWO 10
LITERATURE REVIEW 10
Overview of SMEs10
Importance of SMEs to the Ghanaian Economy11
Accounting Systems of SMEs13
Types of Accounting and Financial Accounting Systems of SMEs14
Types of Conventional/Manual Accounting Systems16
Computerized Accounting System17
Benefits of Computerized Accounting System for SMEs18
Challenges of Use of Computerized Accounting System of SMEs20
Effects of the Challenges of Computerized Accounting Systems on SMEs Operations22
Empirical Evidence of Computerized Accounting System of SMEs23
RESEARCH METHODOLOGY 25
Profile of the study Area25
Population of the Study27
Sample Size and Sampling Technique28
Data Collection Tools and Techniques29
Data Processing and Analysis30
CHAPTER FOUR 31
PRESENTATION OF RESEULTS AND DISCUSSION 31
Presentation of Results31
Socio-Demographic Characteristics of Respondents32
Type of Ownership of SMEs in Sunyani33
Categorization of SMEs in Sunyani Municipality34
Number of Years of SMEs Operation35
The Type of Conventional Accounting Systems Employed by SMEs in Sunyani Municipality36
BenefitsofComputerized Accounting Systems over Traditional/Conventional Book Keeping41
Challenges facing SMEs with the use of Computerized Accounting Systems44
Effects of the Challenges of Computerized Accounting Systems on SMEs Operations45
CHAPTER FIVE 47
SUMMARY, CONCLUSION AND RECOMMENDATION 47
5.1 Introduction 47
CHAPTER ONE: INTRODUCTION
Background of the Study
Small and Medium Enterprises (SMEs) have been the builder of most economies. They are the largest employers of workers both in developing and developed industrial economies. They are seen as resourceful and productive employment avenues, the power of big businesses and the driver of national economic locomotives (Carsamer, 2009). SMEs enhance the effectiveness of a countries market and make creative use of limited resources, thus enhancing long-term economic advancement.
In Ghana, 90% of businesses are small and medium enterprises which make the pivot of the counry (Acolatse, 2012). They are essentially the drivers of the Ghanaian economy through their contribution to income, employment generation and ultimately economic growth. A survey conducted by Aryeetey (2001) reports that SMEs represent the production force of Ghana. They contribute about 85% of the manufacturing employment of Ghana. They are noted to provide 70% to Ghana GDP and represent about 92% of enterprises in Ghana.
Small and Medium Scale Enterprises face an assortment of challenges and these challenges can be summed up to lack of knowledge since most SMEs lack knowledge in keeping records of business operations (services, 2011). This menace has caused the folding up of most SMEs especially in the Sunyani municipality in the Brong Ahafo Regiion of Ghana.
Accounting is an integral part of business accounting. It entails accumulating, analyzing and classifying of financial data in the accounting system on a daily basis. (Hagenimana, 2008). Accounting records include entries from day to day transactions that involves receipts and expenditure and in some cases a list of organizational assets and liabilities. This document helps to evaluate the performance of the business within a particular period of time usually at the end of a financial period. Proper Accounting provides evidence of how the transaction was handled and substantiates the steps that were taken in order to comply with business standards (Reed, 2010).
According to Longenecker, Moore, Petty, & Palich (2006), an accounting system must offer accurate and all-inclusive report of business activities and transactions, offer easy assessment between current and previous years data. It makes the financial statement easy to be used by bankers, potential creditors; management and it ease filing of reports and tax returns to government regulatory agencies. Keeping proper accounting record help minimize the degree of error, waste, theft, employee misconduct and do significantly contribute to the growth and sustainability of SMEs.
Over the years, the traditional way of keeping business records or accounts has been by use of calculators, pen and a set of books, which worked fine for the businesses at that time (Sam, Hoshino & Tahir, 2012). Keeping financial record has now been made easier and simple through the use of information technology (IT). The current improvement in information technology is converting computer resources into a necessity. Thus, business owners have now accepted the adoption of information technology as business enabler to support business processes (Runge & Lee, 2002). This current advancement in information technology have subsequently given birth to Computerized Accounting
Systems in businesse to help present a faithful representation of financial reports for management and external users in making decisions (Greuning, 2006)
Computerized Accounting System uses computer accounting software to prepare and give results of business activities. Accounting software is computer application software that records, process and retrieves information in a form of report of an entity on a daily basis. The accounting software could perform business functions such as payroll, account receivable, account payable and trial balance. These software applications makes it possible for the whole business cycle and operations to be carried out on a computer which gives it the name Computerized Accounting System.
According to Fast Track, Computerized Accounting system has revolutionalized Accounting practices of businesses. Most developed economies have benefitted from this system. However the Ghanaian economy has been adopting it gradually in most businesses especially small and medium enterprises which constitute the majority of businesses in most cities and towns and Sunyani Municipality is no exception. The Sunyani Municipality being the capital of the Brong Ahafo Region of Ghana covers 2,488 square kilometers and shares boundaries with Sunyani West District to the West and North, Asutifi District to the South and Tano North District to the East (Sunyani Municipal Assembly Quarterly Report, 2013, October, 15th, P.15)
The municipality is now opening up rapidly due to the setting up of new tertiary institutions coupled with rural urban migrations. This situation has attracted many small and medium enterprises to the municipality. To be able to measure whether the SBOs in the Sunyani Municipality are doing well in terms of their business operations, it is crucial that these SMEs have in place computerise Accounting system.
Problem Statement and Justification
Over the years, many SMEs have folded up soon after their establishment. This problem could be attributed to an array of factors which include poor accounting Accounting. The importance of keeping proper records to promote the growth and sustainability of small scale businesses has been researched in earlier research on small business growth and development (Abor & Biekpe, 2006). Keeping proper financial records have been identified by many researchers. Some other studies have found lack of keeping proper financial records as the most serious obstacle to growth of small businesses. Bowen (2009) observes that a strong link exist between how a business performs especially in business finance Accounting.
Studies indicates high failure rate for small and medium businesses especially those in developing countries like Ghana (Arinaitwe, 2002). Previous statistics conducted in Kenya indicates that 60% of businesses fail within the first few months of operation (Kenya National Bureau of Statistics, 2007). Similarly, Kamunge, Njeru & Tirimba (2014) stated that the rate of mortality of SMEs is high within the first two years, only 44% of them survive at the first four years. Many environmental and internal factors are attributed to this problem among SMEs. Walton (2000) supports that poor record keeping and inappropriate utilization of accounting information to help financial management has generally been observed as a major cause of the small and medium size enterprises’ failure.
Again, Longenecker, (2006) cited inadequate planning, inappropriate financing, ineffective accounting and management practices as the major causes of failure of SME management. This assertion is affirmed by Germain (2009) who noticed that failure to record business financial transactions have resulted in the collapse of business within
few month of its establishment. Also, McCannon (2002) indicated that, many SMEs fail because owners could not make appropriate and key managerial decisions as a result of non availability of records.
SMEs face problems in the adoption of accounting standards. When accurate records of financial transactions are not kept it will this give room for fraud. Poor Accounting of businesses limits their chance of assessing institutional credits. Proper Accounting is at the pivot of growth and development of SMEs. Proper accounting Accounting has become an indispensable necessity for SMEs since when records are not kept ascertaining the profit made within a period is difficult. As a result, it is possible that the tax authorities may turn to overstate the tax liability of the business owner.
Casual observation of records keeping of some SMEs in Sunyani coupled with frequent interactions with most of them revealed that majority of them lacked adequate knowledge and skills to keep complete and reliable records of their business activities.
Most small and medium enterprises in Sunyani also complain of challenges associated with the adoption of computerized Accounting system. These challenges include high maintenance and installation cost, risk of being hacked, failure of electricity power, losing information through viruses and system breakdowns. It is based on this situation that this study seeks to investigate computerized Accounting among small and medium enterprises in Sunyani Municipality.
Objectives of the Study
The objectives of the study are classified as general objective and specific objectives.
The study explores the use of computerized Accounting among small and medium enterprises in Sunyani Municipality.
The specific objective of the study includes;
i. To assess the types of Accounting systems employed by SMEs operating in the Sunyani municipality
ii. To examine the extent to which SMEs use computerized Accounting in their business activities in the municipality
iii. To investigate the benefits with the use of computerized Accounting system by SMEs in the municipality
iv. To determine the challenges facing SME Operators with the use of computerized Accounting system in the municipality
General Research Question
The study answers the following questions to meet the research objectives.
i. What are the types of Accounting systems employed by SMEs operating in the Sunyani municipality?
ii. What is the extent to which SMEs use computerized Accounting in their business activities in the municipality?
iii. What are the benefits/advantages with the use of the computerized Accounting system by SMEs in the municipality?
iv. What are the challenges facing SME Operators with the use of the computerized Accounting system in the municipality?
Significance of the Study
The contribution of SMEs to the expansion of the markets of developing countries cannot be underestimated. For this reason, Accounting is a pivotal growth determinant factor of the profitability of businesses. Conventional manual Accounting systems over the years have proven to be cumbersome, prone to errors and sometimes unreliable when it comes to information processing, storage and/or retrieval. This poses serious challenge to the business owner in monitoring and evaluating the growth of the business over time.
Findings of this study would provide information to SME operators towards finding long term solutions to their business Accounting challenges. It would also provide SME operators and stakeholders with information on value of quality Accounting as a pillar for sound business decision-making and subsequent good performance. Again, it would add to the existing pool of knowledge on performance and thus stimulate further research in both Accounting and performance in SMEs in Ghana.
Scope of the Study
The study covers small and medium enterprises within Sunyani municipality. This includes Agriculture and agro-processing, artisans, textile and leather works, food processing, creative and art works, clothing and fabric designing among others.
For the purpose of this study, a small entities are those that have less than ten (10) employees, including the owner whilst that of the medium entities ranges between ten to fifty (10-50) employees including the owner.
The study focuses on the financial Accounting systems used by the various SMEs operating in the municipality, the use of computerized Accounting system, the advantages and disadvantages of these Accounting systems, and the challenges that these firms encounter with the application of this computerized Accounting system.
Limitation of the Study
In carrying out this study, the following challenges were encountered; nevertheless, these limitations did not in any way bias the outcome of the present study.
Access to information: it is a challenge getting information from some respondents. Despite being made aware of the purpose of the study, some were reluctant to offer the needed information. Also, some relevant information required from stakeholder institutions like NBSSI is absent due to improper Accounting. Some vital information are sourced from the internet and other classified sources.
Time of study: Time for conducting the research, academic commitments and other personal commitments are difficult to manage. It is quite a challenge collecting data from respondents since research period coincided with the active academic period.
Finance: financing the study is a challenge. Money for data collection and or procurement, analysis to final printing and binding of the study report involved a high amount of financial commitment.
Organization of the study
The study is organized in five chapters. Below is a diagramme that illustrate the organization of the study.
Figure 1.1: Diagram Organization of the study.