ASSESSING BOOK KEEPING PRACTICES OF SMALL AND MEDIUM ENTERPRISES

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The purpose of this study is to assess the bookkeeping practices of small and medium scale enterprise. The study examines the assessment of bookkeeping practices and its aim. In light of this, one Small and Medium-Scale Enterprise will be taken as case study which- Mercury International (SL) Limited. Bookkeeping is the recording of financial transactions and is part of the process of accounting in business. Transactions include purchases, sales, receipt, and payments by individual person or an organisation. There are two main standards methods of bookkeeping, including the single entry and the double entry bookkeeping systems.

The roles of Small and Medium-Scale Enterprises can best be sustained through the implementation of fundamental bookkeeping and accounting practices. However, it has been reported that many Small and Medium-Scale Enterprises fail to keep adequate bookkeeping records to generate the much needed accounting information that owner-managers and other users require for their decision making purposes which has led to major problems of weak internal bookkeeping systems of some Small and Medium-Scale Enterprises. This has also resulted in poor planning, weak expense control, low collection of accounts receivable, poor bookkeeping condition, and inadequate information for decision making purposes.

The importance of small and medium scale enterprises to economic development of any country whether developing or developed cannot be over emphasized. Small and medium scale enterprises are considered to be one of the driving forces of economic development. They play very important roles in sustaining the national economies and promoting industrial development. To a large extent, small and medium scale enterprises play a significant part in improving the living standard of the entire citizenry by creating goods and/or services, stimulating private ownership and entrepreneurial skills, creating viable sources of revenue to the government for developmental purposes, increasing employment opportunities per unit of capital and aiding the development of local technology.

An accounting practice is therefore a day to day implementation of the accounting policies of an organization as distinct from bookkeeping theory. The role of accounting practice in Small and Medium Scale Enterprises will be to prepare the accounts and provide management guidelines and advice.

Accounting ensures that not only all identified sources of revenue are efficiently tapped but that such realised revenues are fully accounted for. In terms of accounting for revenues, the requirement is adequate period. This involves maintaining adequate source of documents such as receipts and invoices, and books of accounts such as the cashbook, ledger accounts, balance sheet and other forms of analysis.

Ensuring that a business continues as a going concern is also important, the fundamental concern of most small entities and their financial not surprisingly is survival.

​​​​​​​STATEMENT OF THE PROBLEM

Several studies have identified SMEs as key means through which industrialization and economic development can be achieved especially in developing countries. However they continue to face several challenges relating to their sustainability mainly because of the inability to effectively understand the management and concept of bookkeeping. Because of this, most small and medium scale enterprises tend to be profitable during their inception but are force to cease operation after few years due to their inability to meet short term debts obiligations. The key problem is not inadequate funds but the management of funds available and keeping proper accounting records.

It is against this backdrop we seek to examine the bookkeeping techniques of SMEs in Freetown, Sierra Leone and what lessons can be drawn to enhance the contribution of the sector to the nation.

​​​​​​​OBJECTIVES OF THE STUDY

The purpose of this study would be to assess bookkeeping practice in small and medium scale enterprise in Sierra Leone, in Freetown Metropolis specifically.The objectives of this study include the assessment and evaluation of the extent to which SMEs in Sierra Leone keep accounting records or undertake accounting procedures and this will include the determination of the following;

1. To examine the types and completeness of accounting records kept by SMEs as a source of information for economic decision making.

2. To examine the challenges of SMEs in keeping proper books of accounts as a source of information for economic decision making.

3. To examine the effects of improper accounting records on the businesses of SMEs in Freetown municipality.

​​​​​​​RESEARCH QUESTIONS

In relation to the objectives of this study the following research questions would be addressed.

1. What are the type accounting records kept by SMEs as source information for decision making?

2. Are there challenges faced by SMEs in keeping proper book of account?

3. What are the effects of improper accounting records on the businesses of SMEs?

​​​​​​​SIGNIFICANCE OF THE STUDY

It is hoped that the result of this study concerning bookkeeping practices in the Freetown municipality would contribute to current knowledge on growth of SMEs at the Ministry of trade and industry, Statistics Sierra Leone and other promotion agencies.

Secondly, the findings unearthed will be useful not only to SMEs in Freetown but also to all Small and Medium Enterprises throughout the country. This would also help stakeholders in business to formulate and implement policies that will help them to effectively manage a proper bookkeeping system.