The research title is to “examine the role of accounting information on small business profitability’’
The researcher pursuing the accountant degree and he wants to become a professional accountant after completion of the degree. This project gives the detailed understanding of the importance of the accounting information which is beneficial for the small business firms. This project is categorized into different parts like project background, research aims, and objectives, literature review, research methodology, findings, discussions, and conclusion. The researcher explores the various areas of the accounting information and find out the relevant information from the research topic and carry on the research significantly.
The research topic is to examine the role of the accounting information on small business profitability. In the current business environment, it is important for any business to use the effective information to achieve the competitive advantage of the firm. Accounting information gives the clarity to the business regarding its financial, liquidation and profitability of an organization. On the basis of effective accounting information it provides the solid understanding to the researcher to take strategic decisions in the future (Aelterman, et al., 2013). Accounting information reduces the chances of misinterpretation of the data and wrong decisions. Effective accounting information increases the goodwill of the business and creates the trust among its internal and external shareholders. Moreover, the profitability of the business depends upon the reliable and accurate accounting information. On the basis of this information, the management can evaluate the alternatives significantly and take effective decisions.
The role of accounting information is crucial for the research. The understanding of the accounting information and standards increase the capabilities of the researcher for career and academic purpose. Accounting information provides the lot of knowledge to the researchers which are beneficial for the researcher in the long term (Anfara and Mertz, 2014). This topic is beneficial for the researcher if he makes the career in the accounting field. This research will be helpful for the researcher to provide the brief knowledge of accounting information and their importance in the small businesses. Moreover, it also helps the researcher to take strategic decisions on the basis of accounting information while maintaining the profitability of the business.
The aim of the research is to examine the role of accounting information o small business profitability. Following are the research objectives:-
Objectives laid down by every business organisation are guiding principle to achieve and uphold sustainable growth and ensures long-term performance of the business entity. Irrespective of organisational dimension, objectives are linked with several aspects of business operations like profitability, productivity, efficient customer services, employee retention policy, long-term performance, sustainable growth, social responsibility and marketing efforts. The intricacy of sustaining the business venture is a tough task, while the objectives are easy to be formulated (Husin and Ibrahim, 2014). In the contemporary era organisations are operating in extremely competitive and dynamic environment and are required to identify their internal competence to explore approaching beneficial opportunities and efficiently manage external environmental effects to maintain market position (Castellucci and Podolny, 2017). In support to this Kamyabi and Devi (2011) stated that exploration of internal source is the single alternate in front of the organisational management to maintain its market position in challenging and competitive business environment where external elements hugely influences business operations.
According to Turtle and Wang (2017), fundamental accounting information outlines portfolio performance. Strong fundamental portfolios of business produce huge and constructive performance. According to Kokina et al., (2017), the function of an accountant of the organisation plays a important role in organisational performance as it assists in establishment of a performance management system for the senior management that supports to achieve organisational growth objectives. For example by analyzing customers’ base, their orders and revenue information, management can predict forecast over expected product supply to meet up future demands. According to Tran et al., (2017), profit of small- and medium-sized enterprises also influenced by efficient working capital management. Well-planned and efficient working capital management encourages positive returns for small ventures.
According to Bui and de Villiers (2017), study of accounting information assists organisational management to analyse the risks and opportunities talented from change in industrial policy and transformation of business environment. Small organisations stay away from unnecessary statuary compliances, which probable can hamper their productivity in the longer run through altering adopted accounting policies as required. Wouters and Stecher, (2017) states that small scale businesses are more concern over their cost of production as this cost directly influences profitability of such business entities. By utilizing accounting tools, businesses can perform detailed study over margins of products and direct cost elements, which enable them to save unwanted overheads or additional costs associated with business operations.
According to Francinsco and Ceu-Alves, (2012) accountant of the organisation is the concerned person solely responsible for fulfilling the requirements of presenting accurate accounting figures that aid business managers to take accurate functional decisions. In contrast to above Jemal and Mohsen (2017) states, that intentional manipulative accounting practices or unintended error of omission by the accounting staff could leads to deceptive accounting information or false accounting data. Hence, contemporary businesses are advised to focus their consideration over staffing quality professionals as company is recognised by its quality of products, services and the intellectual human capital they possess. In parallel Obaidat, (2017) states that inadequate or misleading disclosure of accounting profits portrays fictitious or window dressed organisational health. Thus, investors of the business are deceived of acquiring adequately truthful information about their return on investments returns and risks associated with their invested funds.
According to Sok et al., (2017) accounting information is also useful for the organisation to explore and analyse marketing resources that effects organisational marketing capability and performance relationship management. Performance of small entrepreneurs is based on marketing resources and marketing ability they hold. According to DeLarosiere and Nielsen, (2017), accounting, information helps small and medium enterprises to determine probable risks, which they may face through swinging financial and commodity markets. Small organisations can forecast possibilities of financial strains rooted through emerging economic crisis in advance that can adversely affect the organisational profitability and acts as alarming mechanism for the organisation. That enables them to implement precautionary measures well in time in order to reduce the adverse effects over organisational profitability.
This chapter helps the researcher to analyze the different research methods, tools, and techniques which support the researcher to collect data and information related to the research issue significantly.
It is the general viewpoint of the researcher that helps in developing the understanding of the research topic. Generally, there is three type of research philosophies are available with the researcher to develop the knowledge of the research issue significantly. In this research, the researcher used the interpretivism philosophy which develops the subjective understanding of the research issue (Anis, Nasir, and Safwan, 2011). It also helped the researcher to accomplish the research objectives clearly.
Research approach provides the appropriate justification on the various techniques and methods. There are two types of research approach used by the researcher to generate the appropriate justification of the research methods. Two types of research approaches are available to the researcher i.e. inductive and deductive approach. In this research, the inductive approach is based on ideas and opinions to reach the researcher at the specific situation. It is suitable with interpretivism policy, which is effective on the basis of views and perception of employees. This approach enables the researcher to examine the usefulness of the accounting information to enhance the profitability of the business (Au, et al., 2015). Through this, the researcher also enabled to build theories which are not possible by using deductive approach.
Data collection is the important part of the research methodology. The researcher collects the appropriate data from the different sources to accomplish the research objectives. There are two types of data available with the researcher i.e. primary and secondary data. The primary data provides the original data which is collected by the researcher for a specific purpose. It is collected by the survey, questionnaire and personal observation in the research field (Couper, et al., 2013). It increases the quality of the research. On the other hand, the secondary data gives the secondary information to the researcher in the field of research. The researcher collects the secondary data from the company websites, trade journals, and organizational records. For this research, the researcher used the secondary data collection methods to carry out the research effectively. Secondary data are useful for the researcher to identify the gaps and required data needs.
Sampling refers that the sample of the population in order to collect the desired data of the research. Sampling method helps the researcher to determine the right observations from the sample population. Generally, there are two types of sampling methods are available with the researcher to target the respondents i.e. probability sampling and non-probability sampling (Di Francesco, et al., 2011). In this research, researcher selects the probability sampling to choose the respondents on the random basis that reduces the bias from the selected participants for the research. On the other hand, non-probability sampling participants are selected on the basis of experience, skills, and knowledge which enhance the bias in the research.
There are different data analyses methods like statistical analyses, conversational analyses and disclosure analysis are used by the researcher to collect the data appropriately and generate valid outcomes. For this particular research, the researcher used the MS Excel software, company annual reports, journals and annual records, Google scholar of the company to get the reliable outcomes. Moreover, researcher conduct the analytical study with respect to the company’s profitability which analyze the information
In this research, researcher follows the ethical considerations while doing the research. The researcher follows the ethical considerations in the research study. It avoids manipulation of data; referencing part is take care by the researcher which is collected through secondary sources. Moreover, researcher maintains the confidentiality of the data of the participants during the research process.
As per the view of secondary data, it can be analyzed that accounting information tool was increased the overall profitability of Cohort Plc. It is identified that every organization has a guiding principal to achieve the sustainable growth within the business that will able to ensure the long-term performance of the business. In addition to this, it can be described that organization has to maintain their financial performance in the competitive business environment with the help of implementation of accounting information tools and techniques. It can be found that accounting information can be able to outline the portfolio performance of the business.
In addition to this, the company was followed the GAAP accounting information tool which is globally accepted and it can be said that strong fundamental portfolio of the business was able to produce the higher level of profitability. Moreover, it has been identified that overall function of the organization played an important in the business growth and profitability. According to the secondary information, it can be found that accounting information system has a great importance in the business and especially in the management. It was helpful for management to facilitate the process of decision-making. With the help of accounting information tools, the generated information was ideal and useful to improve the overall profitability of the business operation.
Furthermore, it has been found from the secondary data that contemporary era in which the business was operating was a dynamic and competitive environment that required an effective accounting information tool to improve the overall profitability and to maintain the position in the market. It can be said that accounting information of the business assists the management to analysis the opportunities and risk as per the changes industrial policy and transformation within the business environment. In addition to this, mainly the small organization was staying away from various unnecessary compliances that will hamper the overall profitability of the business in the long run by the adoption of accounting information tools in the business.
Along with this, it is stated that small business organization always concerned about the cost of the business that directly and directly influenced the profitability of the business entity. Moreover, it has been found that there was intentional manipulation within the various accounting practices by the staff of the organization, which leads to the false accounting data. It is identified that accounting information is useful to analysis and explore the resources related to a market condition, which affects the overall market capability and relationship management performance. Accounting information tools help the small business to determine the risk that was negatively influenced the financial performance and profitability of the business. It can be said that accounting information system was help for the valuation of tax and other activities in the business environment. The main function of the accounting information is to assign various kind of quantitative values related to the business position in present, past and future business event.
From the practical point of view, we have selected a small organization from Australia, which is Cohort Plc. The number of employee in the company is around 150 that indicate that it is a small level company. In which, it can be seen that company follows various kind of accounting information that affects the overall profitability of the business along with the accounting information tools and their financial performance. The financial performance of this company can be described as under-
Gross profit analysis of Cohort Plc
Analysis: From the above table and graph, it can be identified that gross profit of the company was decreased in the year 2012 but after 2013, gross profit of the company was continuously increased. The overall gross profitability of the company impacts on the various areas like- product, customers, and market Share. The Company has followed the GAAP accounting tool which is globally accepted in the world. Hence, it can be said that accounting information tool was improved the overall profitability in Cohort Plc.
Analysis: From the above graph, it can be identified that net profit of the company fluctuated in over the period of 2014 to 2016. In addition to this, net profit of the company represents the net earnings of the company that measures the overall profitability of the organization after the deduction of all cost and expenses. As per the views of the financial statement of this company, the net profit of the company was fluctuated in increasing way because of the implementation of accounting information tool. As per view of the annual report of Cohort Plc, it is analyzed that GAAP can affect the net profit of company by affecting cost, revenue and overall disclosure of the business.
Analysis: The above graph depicted the revenue of Cohort Plc as the revenue of the organization was increasing in a continuous way after the implementation of accounting information tool. The revenue of the small business indicates the income from the normal business activities of the business. GAAP, which is international accounting information tool has been implemented by the Cohort Plc that played a major role in the higher profitability. In addition to this, GAAP was helpful to estimate the fair market value of the product and service of the company that was directly and indirectly affect the overall revenue of Cohort Plc.
Conclusions and Recommendations:
As per the overall research study, it concludes that the accounting information plays an important role to enhance the profitability of the small business organization. Moreover, it also finds that the researcher used the appropriate sources and data analysis methods to get the detailed understanding of the accounting information. As per the secondary data sources, the researcher finds that accounting information ensures the small business to increase and decrease in the performance levels of the business. Moreover, it also finds from the research that most of the small business which does not have sufficient accounting information systems which result in the continuous low-performance levels. As per the findings of the research, it concludes that there is a positive relation between the accounting information system and profitability levels of business.
As per the findings and conclusion, it recommends that small scale business should adopt accounting information systems for their business to progress. The researcher recommends the following ways to increase the profitability of the business through effective use of accounting information.
In this research, the researcher faced some issues regarding the time and cost restrictions. It is because the researcher used the questionnaire method and secondary data sources which may influence the validity and reliability of the research. At the same time, the other methods of data collection such as literature review and interview of the key managers to gather valid and reliable data to present authentic research outcomes. Moreover, the researcher to present the findings in a different manner so that it will improve the process of the research studies in future.
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