This report is based on the role played by the accounting in a small business. This report outlines the benefits of the accounting information for the working of the small scale organization. All the financial information and how it works for smaller organizations. This report outlines all the topics like problem definition, critical review of the literature, research methodology, results and conclusions. The purpose of the report is to understand the importance of the accounting information by reviewing the articles. The Whole research is based on the data and facts along with the information related to the problem.
There is not that much attention is given to the accounting information from the small scale organizations. The small scale organizations are not used to keep the records of the transactions even after knowing the importance of the book keeping for the business.
The most important advantage of the accounting is that the management of the accounting information helps in taking the best financial decisions. Whereas , one wrong decision regarding finance can result in the poor financial conditions of the business. The problem arises when the company is unable to maintain the required information related to finance.
Talking about the growth of the company,it is highly dependent on the performance of the small scale organization. The performance can be measured in the terms of financial, operations and its hold on the market share. The Main objective of each and every organization is to earn maximum profits as well as the growth of the business. There are many strategies used to earn the market share and to achieve the goals of the organization. Here, to increase the market share, the financial decision making is very important. The success of the small business depends on the financial operations decisions.
It can be observed that the growth of the small business declines with the lack of the financial information. The small business will face the loss in the organization. The profit earning and business growth are the goals of any business. Thus, failing of these goals leads to the business loss.
Moreover, the account information is very essential for the financial stability of the small scale businesses which is based on the proper decision making and business growth.
The main aim and objective of this research report is to analyze to accounting role in a small scale business.
According to many authors and researchers, the accounting information is available in the form of cash flow statement that depicts the cash inflow and cash outflow. The financial information is very much beneficial in taking the best decisions regarding the investment. The accounting information provided to the different departments of the organizations is accurate and true information about cash flow. The division of the flow of cash is also analyzed with the help of the accountants in the organization (Kavcic & Jerman, 2015).
The division of the cash flow is possible on the basis of many business activities like investments, purchases, creditors and debtors. The profits earned by the companies are also determined by the small organization through these cash flow statements. The complete information of the capital is shown through these statements (Naira Project, 2016).
The researchers talk about the aim of accounting in organization and as per their point of view, the accounting information is the best method to deermine the economic conditions of the organization. All the decisions related to investments, credits and finances are taken with the help of this information. If the company maintains the proper record of the cash transactions, then it will help the company to grow and earn maximum profits (Smirat, 2013).
The financial conditions identified with the help of the accounting systems is helpful in preparing the documents or statements like tax structure, production charts, strategic planning. It is difficult to identify the financial condition of the organization without these financial accounting information. The balance sheet and the profit and loss account of the company represents the company profits earned as well as the liabilities of the organization (Muhindo, Mzuza, & Mzuza, 2014).
The account information can be maintained by the departments of the organization by collecting and recording the data and then compile that data into information. The sheets containing the financial information prepared that explains the events that have a great impact on the organization performance (Kassa & Abed, 2014).
Talking about the small organization, an organization is said to be small if it has small investments , less number of employees and the low market share. According to the many researchers, the sales volume of the company also determinesits level. According to the point of view of many authors, the company should develop a habit of keeping the records to make the company grow and earn profits. But there are many organizations that do not consider it significant to maintain its accounts. (Pornpandejwittaya, 2012).
Talking more about the types of the Accounting procedures, then it divided into two systems which are followed by the small sized organizations. The manual systems And The Legacy Systems are the accounting procedures. It has been observed by the researchers that there is an IT system which is presently used by the many big companies as well as by the small enterprises also (Okoh & Uzoka, 2012).
As per the review of the authors, the manual system of accounting procedures is used by the small level organization and also medium and big enterprises used it on the partial basis.The manual system involves the book keeping system to record the data of small organizations. (Butkevicius, 2009). A manual system of the accounting procedures needs ledger, journals and the records of the financial transactions in the source document.
A source document contains all the data of sales orders, purchase orders and cash receipts. The ledger is the document that consists the details of the full set of accounts used in the accounting system of the small companies. The transactions entry and summaries are mentioned in the general ledger account (Nawaz, 2012). On the other hand, the journal contains the specific transactions.
The second type of the accounting procedure i8s the Legacy system which is based on the old technology. The accounting information is stored on the host computers. All the processing of the records is done on the host computers. This system saves the time of the employees as compared to using the manual system. (Alnajjar, 2016).
Decision making is a very important part of the organization’s success. The decisions of the organizations are based on many factors like information, facts, skills and future prospects. The decision making regarding the investments in the company is focused on the accurate and clear data of the financial transactions. These financial information is the best source to build the marketing strategies and planning in the small scale organization. Moving further, one right decision taken by the company will lead to profits and build its great image. The expenses and profits can be controlled by collecting the correct information of accounting (Breuer, 2013). The right decisions can be made only if the company has correct information. Every organization wants to earn profits and it is possible only by taking correct decisions. Every organization wants to earn profits and growth and correct information helps in the growth of the organization (Amissah, 2011). There are three important points on which the accounting information depends and these are business language, decision making and the integrated entity.
Al the main points should be taken into considerations for a quick decision making. The quick or faster decision making by the managers also helps in removing the obstacles in the financial management (Harash, Timimi, & Radhi, 2014).
The good planning and the understanding of the business environment are very important to manage the small business in a successful manner. The accounting information has great contribution towards the decision making, strategic planning and the growth of the small business. The strategic planning of the small o0rganization also depends on the finances and its availability. (David & Dunn, 1998).
However, the strategic planning, collecting data, managing and organizing are the ways to add value to the growth of the organization. The accounting statements consist of the facts and figures which are used in planning, manufacturing, advertising and investment decisions. The financial information of any type impacts a small enterprise in various ways. (ICAEW, 2011).
Therefore, the following points of hypothesis are observed through the above studies:
H0: Is the proper account information affecting the performance of the organization in a positive way?
H1: Does the procedures used in accounting systems has the positive effect on small scale business?
H2: Is Accounting information helpful in taking the best decisions?
The methodology used for the research is the mixed method approach and the research design is to gather the data for SMEs and SMPs under the sector of Manufacturing in the East coast region of Malaysia that includes 3 main places Kelantan, Terengganu and Pahang.
The report is based on the secondary data sources. A Proper review of the annual reports and company documents will be take place for the accuracy and efficiency of the accounting information. There are two main methods used by the big companies to collect the data – qualitative as well as quantitative. Mixed method approach refers to the data collected from the both quantitative and qualitative studies. The quantitative research is based on the statistical data measured by using validated data collection instruments. The mixed research method is used to identify the relationship of SMEs and SMPs with the help of Gap analysis. This approach is also helpful in testing the hypothesis and theory with the available data. The mixed-method of data collection will increase the confidence of findings by providing validation of data and results, introducing the opportunity for creativity by offering fresh perspectives on the phenomena and including contextual aspects of the SMEs and SMPs perspective.
Talking about the population of the SMEs, under manufacturing concerns located at east coast region in Malaysia are around 5000(4,978) companies. Stratified sampling method is used to get the best results from the samples of companies which represent the whole population. The sample of 250 companies is used to collect the data from a sample of SMEs.
In the below table, the number of establishments of SMEs under manufacturing industries in year 2010 at Kelantan, Terengganu and Pahang has been shown.
|
Number of establishments in SMEs in manufacturing sector |
|
|
State |
Total |
|
Kelantan |
1825 |
|
Terengganu |
1805 |
|
Pahang |
1348 |
|
Total |
4,978 |
Source: Department of Statistic Malaysia, 2010
There are the 59 accounting firms which have been taken as a sample population. The survey with the help of questionnaires will be conducted with the 100%, accounting firms in the east coast region in Malaysia as a sample of this research. The below table shows the Malaysia Institute Accountant (MIA) accounting firms located at the three places in Malaysia at Kelantan, Terengganu and Pahang.
Number of firms at East Coast Region in Malaysia
|
State |
Audit |
Non audit |
Total |
|
Kelantan |
14 |
4 |
18 |
|
Terengganu |
16 |
4 |
20 |
|
Pahang |
15 |
6 |
21 |
|
45 |
14 |
59 |
Source: Firms and locations from MIA (2011)
In the qualitative approach, 10 Successful SMEs have been interviewed using cluster sampling. The interview is conducted with the chief executive of the company in order to know the role of accounting in their business and how it has impacted on the decisions and growth of the company. The time set for the interview was 1 hour.
Five focus group interviews will be used to select the SMPs among the east coast region in Malaysia.The characteristic of the focus group will be chosen to represent different business sectors and ethnic concentrations based on the advice from MIA.
|
Number of establishments in SMEs in manufacturing sector |
||||
|
State |
Audit |
Non audit |
Total |
No of focus group |
|
Kelantan |
14 |
4 |
18 |
2 |
|
Terengganu |
16 |
4 |
20 |
1 |
|
Pahang |
15 |
6 |
21 |
2 |
|
45 |
14 |
59 |
5 |
The analysis of the quantitative data is done on the basis of the feedback and annual reports of the company. According to the point of view of many researchers, it is analyzed that this method is helpful in providing the correct information and real facts related to the study. The analysis of the large group of people is done statistically. The facts and figures collected through the research or the financial reports of SMEs are helpful to make the people understand about the role of the accounting information in the small business(Madurapperuma & Thilakerathne, 2016).
For this study, the secondary data have been used as a source of information, for example-Annual reports, official websites and publications of the organizations. There are two types of tools and techniques are used to analyze the role of Accounting (Hla & Teru, 2015). These techniques are: –
Accounting technique: These types of techniques are used on the basis of the requirements and the data available through financial reports. The Accounting techniques are used by the small business in order to do the ration analysis. Ratio analysis is the technique used by the organizations to find out the quotient between the two numbers and the relation between these figures. The ratio analysis is considered to be done on the basis of the financial data available in the financial reports (Maxwell, 2012).
Statistical techniques: These are the techniques used to analyze the performance of the organization on the basis of the statistics. These techniques are as follows:
The research helps to determine the validity and reliability test with the help of Cronbach’s Alpha coefficient. Cronbach’s alpha can be represented as a function of the number of test items and the average inter-correlation among the items. The formula used for the coefficient of Cronbach’s alpha is shown below:
Here, N refers to the number of items, c-bar is the average inter-item covariance among the items and v-bar equals to the average variance. It is considered to be good if the value of the Alpha is above 0.80 to maximum value of 1.00.
In this research report, 30 participants have been selected from SMEs and 30 participants will be selected from SMPs. As per the many researchers, it is said that the 5 to 20 samples are enough for the pilot study. In this research, on the basis of the dimensions, the measurement of the reliability of each item is done and in that case the value more than 0.70 is acceptable (Baghersefat & Zareei, 2013). The positive effect of the accounting on the organizational performance has been stated by the research. Therefore, the response rate was considered adequate by the researchers.
The research data is analyzed with the help of many software’s like SPSS (statistical package for social science and NVivo. This program has helped to analyze the performance of the SMEs before and after the use of financial accounts. It is also will use to test all the hypotheses formed to prove its significance. With the help of the descriptive analysis, we would come to know that the accounting is very important for the successful business operations of the SMEs. The structural equation modeling is used to find out the relation between the dependent variable and independent variables.
From the analysis, it is found that in the east region of the Malaysia, the Kelatan is the place where the number of SMEs established are more as compared to the other places and these companies. In these places, the accounting firms are supporting the SMEs for the improvement of the performances. The companies need the support of these accounting firms to maintain their financial accounts properly in Malaysia. The Pahang is the place which has the maximum no of accounting firms. In the end, it has been observed that all the accounting firms are playing very important role for the better performance of all the small medium enterprises in Malaysia.
This part of the report explains the comparison between the literature review and the findings of the analysis. As already studied, about the objective of this report was to identify the significance of the accounting in a small sized company. The method used for gathering the information for the accounting reports are also explained in this report. The proper decision making and the growth of the organization is possible through the management of these accounting reports. The analysis done on the basis of the annual reports and the survey also stated the positive impact of the accounting reports on the performance of the small enterprises.
Is the proper account information affecting the performance of the organization in a positive way?
All the findings of this research report has proved that the proper management of the accounting information has the positive impact on the organizational performance and faster decision making processes. There are some of the organizations also who do not consider the accounting important for their business. This will lead to the loss of the company. The findings of the report make it clear that the information given in the book keeping records is real, accurate and correct regarding the sales, credits, liabilities and profits and loss of the company. (Davis, 2017). In this report, the research shows that the accounting firms in Malysia are supporting to SMEs to provide the great services and to improve the performance of the Small enterprises.
Does the procedures used in accounting systems has the positive effect on small scale business?
The findings of this report also focused on the accounting procedures used by the organization and their effects on the reputation of the organization. The two systems were explained in the literature review of the report. The manual and the legacy systems are the accounting procedures used by the companies to maintain its accounting reports. The use of manual system is easy, but there are many errors that can be found in this system. The legacy system used the old IT system where the accounting reports are maintained and processed on the host computers. It is clear from the literature review that the maintenance of these reports leads to the financial transparency of the financial records. It is concluded from the above findings that the manual systems are much better than the legacy and new It systems because the new IT system involve huge investment which small organizations cannot afford (IFAC, 2010).
Is Accounting Information Helpful in Taking the Best Decisions?
The decision making is greatly influenced by the accounting information as the accountant can easily draw the relevant information necessary for the decision making processes. Therefore, it will be an easy task for the accountant to take decisions on the basis of these statistics (Bushman & Smith, 2003). The findings concluded that the faster decision making is possible because of the availability of the required information.
Introduction and Conclusions
The conclusion and the recommendations for this report is the last section that explains the crux of the report and some of the suggestions to improve the accounting systems in the organizations. The specific objective of the report is explained by mentioning conclusion and the recommendations together. The study, based remarks and outcomes and effects are specified in this chapter.
Conclusions
It is concluded from the report that,for the survival of the small enterprise, the accounting management is important and also these will help to minimize the failures of the small business. The report explained very well the relation between the accounting procedures, decision making and growth used in the smaller organization. According to the point of view of many researchers, it is proved that the accounting reports have great effect on the growth and decision making of the organization (Yadav, 2013).
It is recommended that the managers and all the accountants should maintain the reports for the company success and for the proper decision making. Through this, the managers should easily enhance the performance of the organization. The accounting information should be kept safe to avoid the problem of misusing of data. The staff and employees in the organization should be properly trained to analyze these reports and to take the best decisions. The effective decision making is the best way to grow in the market and earned profits as well as to increase the market share also. As we know that, small scale industries are afraid of being suffered from the losses. Hence, the proper management of the financial records helps to reduce the fear of failure in case of a small companies.
The profits of the organization can be achieved by maintaining the accounting information. It is already proved in the above analysis (Giampietro & Aspinall, 2013). The profits can be earned by the organizations through establishing the financial stability and monetary gains. This will automatically lead to the company growth. To analyze the financial gains, the accountant should do the financial calculations with the help of these accounting reports. The strategic planning should be done according to the situation of the organization. The manager and the accountant should obtain the transparency in its projects for the growth and success of the small enterprises.
At last, it is concluded that the accounting information are helpful and they are not expensive as compared to other systems and it is very easy to handle these systems. Talking about the IT system, then it also needs a manual system for entering the details of the transactions into the computer systems. Therefore, it is proved that the Accounting plays a vital role in small businesses.
Therefore, the study revealed the importance of maintaining proper account information and account records for the organization’s survival. The account information mentioned in the annual reports and monthly reports is a support for the financial performance. Also,the positive impact has been proved in the research by adopting the accounting procedures in a small organization (Kidane, 2017).
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