CHAPTER ONE

INTRODUCTION

1.1    Background to the Study

Many people want to be on their own following the nationwide campaign for self-employment, this is due to the fact that government cannot provide employment for every individual and also encouragement from National Directorate of Employment (NDE), Small-scale Industries (SSI), back-to-land programme, community Banks, Family Economic Advancement Programme e.t.c. This has brought about a great increase in the emergence of various types of small scale business. However, whether, small or large, the need for accounting should not be neglected.

Experience has shown that there’s no accurate record keeping as to when book keeping started in Nigeria; before the advent of the Europeans, some form of traditional book-keeping was used to record financial transactions, such as credit sales, loans and period contributions.

In early 193O’s, clerks were trained on the job as Book keepers to keep financial records of the enterprise and government offices. In 1950's, few Nigerians, who went to the United Kingdom to study accounting returned to run the accounting positions in firms and public offices and thereby train Nigerians in the art of accounting.

In the early 1953 and 1969, some accountants came together and thought of how to organize themselves into one group. As a result of this, the births of institute of Chartered Accountants of Nigeria (lCAN) came into being in September 1965 with the passage of an act of parliament number 15 of 1965. The act established the institute as a legal body responsible for the regulation of the practice of accounting in Nigeria.

Although, the recording of transaction in the books of accounts (i.e book keeping) in line with double entry principle dates back to the 14th century when Italian merchants begun to use the double entry system to records the accounts of stewards of the commune of Genoa for the year 1340. An ltalian monk, Luca Pacioli, published the first known test on double entry accounting. In his book Summa di Arithmetica Geometrice and Proportion) published in 1484, he included a section on double entry accounting entitled DE Computis et Scripture. This section was later separately published in 1504 under the title La Sevola Perfetta dei Mercent which in English means, the Perfect School of Merchants. The double entry system quickly spread across Europe, particularly after the publication of Luca Paciolies summa. Due to its origin, the system in those days was known as the Italian method.

The ancient scribes made their marks on stones, paprus or wax- tablets. These ways of keeping records were invented to meet the need of gathering, processing and preserving information. The growth of empires and commerce made some form of written records necessary.

1.2 Statement of Research Problems

lnspite of the importance of accounting, small scale business managers do not seize the advantage that can be derived in establishing a proper accounting system. Managers employ unqualified personnel. There are even cases where personnel with no idea about accounting perform accounting duties inefficiently.

Lack of knowledge by small scale businessmen in relation to accounting has created a great negative impact on small scale business men, who are yet to appreciate and adequately understand the importance of accounting system.

The general assumptions are that the accounting system of small scale organizations is usually ineffective, some prepare accounts with inadequate records. This project work is intended to find out among other things, the principal factors responsible for the ineffectiveness of accounting system in small scale organization with particular reference to Nalmaco (Nigeria) Limited. This project work focus on how to address the above problems.

 

1.3    Research Questions

In view of the foregoing, the study raises and intends to find answers to the following questions:

     I.        How effective is the accounting system of the company?

   II.        ls there an effective internal control system for management and other staff to guide them in discharging their responsibilities?

  III.        What books of accounts are being maintained by the company?

 IV.        What minimum qualification is a requisite to be employed as an accountant / accounting officer?

  V.        What is the qualification of the present accountant?

 VI.        ls the accounting system computer based or manual?

1.4    Objectives of the Study

The broad aim of this study is to examine the importance of effective Accounting system in an organization. However, the specific objective are;

i. The accounting system in the organization under study.

iii. To evaluate whether or not the system provides good internal control and financial accounting requirements for management to use in decision making.

iv. To recommend a redesign accounting system for improvement in applications.

1.5    Significance of the Study

There has not been any serious attempt by authors to write on the importance of effective accounting system to small scale business, neither any work, note as to the usefulness of accounting to small scale business, the usefulness not even by the advocate of small business establishment. This probably may be due to apparent prosperous nature of some small scale business who do not have proper accounting system, this might have stopped authors to undertake the research on the importance of effective accounting system in small businesses.

Small scale businessmen need to fully see and appreciate the need of accounting in their various businesses, to achieve thus, there arise the need to correct misconception held about accounting / accountants by small scale business men.

1.6    Scope of the Study

Nalmaco Nigeria Limited, Zaria was used as a case study focusing, attention to the importance of effective accounting system to a small scale business, information required was particularly directed to administration and account department section.

Although, the unwillingness of management to release any information to the researcher, until it was promised to be treated as confidential.

Financial problems also make it difficult to travel in order to get desired information and this affected the extent to which information was gathered. The project will cover a period of 2011-20014. Also note worthy is the fact that the study is not up to date due to inadequate necessary data.

1.7    Historical Background of the Case Study

NALMACO (NIGERIA) LIMITED, ZARIA is situated at No. 45, New Jos Road, Zaria (Zaria Local Government Area). The company started business in Zaria in 1986. The company was formed as a limited company on 19th February, 1986. It was incorporated as a private company on the same date above. NALMACO (Nig) Ltd has grown in the past years into a medium scale organization that is reliable and reputable ‘as their quality products amply testify. The company has grown into two major group as:

1. Nalmaco Company Nigeria Limited.

2. Nalmaco (Furnishing) Company Nigeria Limited.

The company staff strength of about a hundred and twenty six (156) the company is headed by the chairman and two other experienced Directors with the following departments.

Administrative Department

The department is headed by a Director. The administrative department is charged with all administrative functions. It is responsible for recruitment, selection and interviewing of eligible personnel for employment. The department is also responsible for staff development welfare e.t.c.

Sales Department

This department is headed by the sales manager (furnishing). The main functions of this department are:

1. Sales of finished products

2. Negotiate and arrange with customers report of delivery e.t.c.

3. Collection of cash for credit sales when due.

4. The sales department advertises the goods.

Account Department

This department is headed by the accountant of the company. This department is the brain storm of operational unit of the major importance to the study. The accountant is responsible for all accounting records, he plans, controls, safeguard and coordinates all activities in the accounts department. Other staff in the department are:

1. Senior account clerk (Book Keeper)

2. Cash clerk (Petty Cashier)

3. Senior accounts clerks (Cost Accounts)

4. Other accounts clerks of the departments are store keepers, costing clerk, and book keeping clerks.

Purchasing Department

The department is headed by the purchasing manager who handles the purchasing of the materials, staff in this department are:

1. Local purchasing order (LPO) clerk.

2. Receiving clerk.

It is the duty of the department to make sure that the right time and in a right place are when purchases are made.

The department studies carefully, and chooses best channel of transportation to minimize costs and to maximize profits.

 

1.9    Definition of Terms

1. INVOICE: A statement that the purchases are debited with a sum representing the value of the specified goods supplied.

2. INVENTORY: Current assets, they are stock of raw materials used for production. They are goods left when sales are made out of the purchases goods.

3. LEDGER: It is the main book of account (i.e. it is a book containing all various accounts).

4. JOURNAL: it is a diary record of financial transactions made on credit.

5. DEBIT: lt represents the side of the account that receives the cash or goods.

6. CREDIT: Represents the side of account that gives out cash or goods.

7. SMALL SCALE BUSINESS: There have been many definitions of small business by different authors. Some have defined it based on any of the following.

a. Capital base of the business

b. Number of employees

c. Owners being managers and suppliers of capital.

8. FINANCIAL ACCOUNTING: As defined by M. Backer (2003) as classification, analyzing and interpretations of the financial or book keeping, records of an enterprise. According to the Western Dictionary, Accounting can be defined as a theory and system of setting up, maintaining and auditing the books of a firm, the art of analyzing the financial position and operating results of a business concern, in a simple sentence, it is a statement of debit and credit.

9. ACCOUNTANT: This term is often used to refer to any person who has a degree or HND in accountancy, membership of any recognized accounting professional body is always an added qualification.

10. ENTERPRENEUR: Entrepreneurs are individuals who create some sort of innovative economic activity that did not previously exist. They provide goods and services through new business or by attempting to revitalize existing business.

11. WORKING CAPITAL: This comprises of cash, bank balance, stock of materials, needed concurrently to carryout daily operations of a business.

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