Professional Documents
Culture Documents
MBAZIIRA FAHAD
19/2/212/W/362
DBA
AUGUST 2021
ii
DECLARATION
I MBAZIIRA FAHAD hereby declare that this research proposal is my original work and has not been
submitted to any university or institution of higher learning for any award.
Approval
This report Titled “Adoption of business accounting on business efficiency of small scale businesses
A case study of selected businesses in Makindye division ” has been submitted by Mbaziira Fahad for
examination with my approval as the University Supervisor, and it’s now ready for presentation
for the award of a Diploma in business Administration
Signed: ……………………………….. Date: ………………………………..
MRS KAKUNDWA NAOME
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Abbreviations and acronyms
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Table of Contents
DECLARATION........................................................................................................................................iii
SECTION ONE...........................................................................................................................................1
GENERAL INTRODUCTION..................................................................................................................1
1.1 Introduction......................................................................................................................................1
1.6 Hypothesis..............................................................................................................................................5
SECTION TWO.......................................................................................................................................9
v
Summary................................................................................................................................................14
SECTION THREE.............................................................................................................................15
3.0 METHODOLOGY.......................................................................................................................15
REFERENCES...................................................................................................................................20
Appendix 2: Questionnaire...............................................................................................................22
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SECTION ONE
GENERAL INTRODUCTION
1.0 Background to study
1.1 Introduction
This section presents the background of the study, statement of the problem, purpose of the study,
objectives of the study, research questions and hypothesis, scope of the study, significance of the study,
definition of the key terms and the conceptual framework.
1.2 Background to the study
Accounting information is a part and parcel of today’s life which is necessary to understand the accurate
financial situation of the organization and used as the basis of making strategic decisions. Accounting
plays a critical role in the success or failure of contemporary business institutions.
Accounting information serves as a critical tool for recording, analyzing, monitoring and evaluating the
financial condition of companies preparation of documents necessary for tax purposes, providing
information support to many other organizational functions, (Amidu et al.,2011). In the context of SMEs,
accounting information is important as it-can help the firms manage their short-term problems in critical
areas like costing, expenditure and cash flow, by providing information to support monitoring and
control.
The range of accounting information users is a broad one, and it has different information needs, but the
same quality requirements in terms of accounting information contained in the financial statements. Even
if a number of criticisms and limitations can be brought and attributed to accounting information, it
remains the most important substantiation source of financial decisions for most small and medium scale
business.
According to Ademola et al (2012), accounting information is essential to business management. It
involves identification, classification, storage and protection, receipt and transmission, retention and
disposal of records for preparation of financial statements.
Within contemporary economic conditions, a successful small scale business owner needs a lot of reliable
accounting information in order to be able to make quality business decisions (Miko, 1998). Economical
information especially financial and accounting ones are the information which always small scale
business owners use in short term and strategic decisions and they may have most application among
different variables effective in decision-making and in all types of decisions, thereby boosting
productivity and profitability of the business.
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As a result of the increasingly important role that the financial-accounting information plays today in
small and medium scale business as “social good”, accounting has consolidated its central place within
the information system of any enterprises, be it public or private, clearly bringing its“contribution in an
area of complex social, multilateral and multidimensional relations.
The impact of accounting information is a function of the benefit that are derived by the members of the
society who had bind themselves into the social organization of their survival and want satisfaction quest
(Anyigbo 1999).
Business benefit from availability of accounting information, equality important is the availability of
accounting information which facilitates the solution or resolution of business planning, organization and
control function of the enterprises as a social organization. The numbers of Small and medium scale
enterprises in Uganda tend to increase continuously, they are the largest business cluster in Nigeria, yet
with little or no criticisms they are regarded as the primary business organisms that could help enhance
and sustain wealth of an economy in the long run.
Small and Medium Enterprises (SMEs) have been very important in many countries, because of its role
for the country's economic growth. This contribution is judged from providing employment to skilled and
unskilled workers, enhancing national Gross Domestic Products, and providing support to other small and
large business small scale business enterprise (Heenetigala & Armstrong, 2009). Recognition of small
business contribution motivates public and private organizations to support the small business sector by
providing them with a diverse range of services. They are also important to the development of trades and
job market, moreover some Small and Medium Enterprises have high potential to expand their enterprises
to a larger scale, despite challenges especially in financial and accounting systems.
Small scale business enterprise are organized, operated, managed and controlled by a small business
owner.
The term small business owner is being used throughout this study replacing other titles such as operator,
manager, self-employed, sole-trader, and entrepreneur.
Small business enterprises (SMEs) have an important role to play Uganda development. The extent of
contribution these business units can make towards the growth and development of Uganda is dependent
on the level of success attained by their operations. The fact is that, underlying the success of a business
enterprise is the establishment and application of controls by the owners or management in addition to the
systematic record keeping of business transactions, which, at the end of the period, keeps the owner well-
informed about the performance of the business.
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Furthermore, accounting information are needed so that financial statements will be fairly and
consistently describe as a financial performance. Without information and standards, users of financial
statements would need to learn the accounting rules of each business, and comparisons between firm
would be difficult. While keeping track of your business’s finances may seem overwhelming, it’s not that
hard when you know the bases of accounting and bookkeeping.
It has been recognized that appropriate accounting information is important for a successful management
of any business entity, whether large or small (European Commission (EC), 2008).
This research; therefore, focuses on investigating the roles accounting information plays on small and
medium scale business in Uganda , types of accounting records being kept and maintained by SMEs,
their completeness and the availability of accounting skills and knowledge to capture and process
accounting information which can be used to measure productivity and performance in SMEs.
Business accounting is the systematic recording, analyzing, interpreting and presenting of financial
information.
Accounting may be done by one person in a small business, or by different teams in large organizations.
Accounting is the way a business keeps track of its operations.
Historical review
Business accounting is the systematic recording, analyzing, interpreting and presenting of financial
information. Accounting may be done by one person in a small business, or by different teams in large
organizations. Accounting is the way a business keeps track of its operations.
The accountancy profession in Uganda is young, but growing rapidly. Accounting and auditing practices
in Uganda suffer from institutional weaknesses in regulation, compliance, and enforcement of standards
and rules. Various weaknesses were identified in the laws and regulations governing financial reporting.
Adopting International Accounting Standards (IAS) and International Standards on Auditing (ISA) in
1998 was a positive development. However, full compliance with IAS (and subsequently International
Financial Reporting Standards) is not yet readily achieved, and there is inadequate adherence to auditing
standards and professional ethics. Apart from the financial institutions and listed companies, monitoring
and enforcement mechanisms are ineffective. These factors, as well as inadequate accounting education
at university level, lack of learning materials on the international standards, and a lack of monitored and
controlled practical training, have contributed to weaknesses in the financial reporting and auditing
regime
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Theory review
Accounting is important for small business owners as it helps the owners, managers, investors and other
stakeholders in the business evaluate the financial performance of the business. Accounting provides vital
information regarding cost and earnings, profit and loss, liabilities and assets for decision making,
planning and controlling processes within a business.
The main objective of accounting is to record financial transactions in the books of accounts to identify,
measure and communicate economic information. Moreover, tax reporting agencies require you to keep
books at a minimum level that tracks income and expenditure
associated with their situation such as unstable cash and profit positions, and reliance on
short-term debt (McMahon and Holmes, 1991; and Dodge, Fullerton and Robbins, 1994).
However, despite increasing research in accounting in the past decade little is known of
its form and effectiveness within the small and medium enterprises sector (McChlery,
Godfrey and Meechan, 2005). Similar observations are also made by Mitchell, Reid and
Smith (1999) and Marriott and Marriot (2002) indicating that, in the United Kingdom f
only recently had research been directed towards the accounting information that
operate within SMEs.
It is in this regard therefore that this study will broadly attempt to address the gaps left in
the previous studies elsewhere and extend it more specifically to SMEs in Uganda at large.
1.6 Hypothesis
The hypotheses are stated in the null form for testing:
HYPOTHESIS ONE
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Ho1 - There is no significant impact of accounting information on the performance of SME’S
HYPOTHESIS TWO
Ho2 - Accounting information and procedure do not increase the chances of the business operating and
achieving success.
The study researches chose this case study basing on their convenience with its location and operations
within the accounting sector.
1.7.3 Time Scope
The study will cover a period of 3 months and 12 days, from June 2021 –August 2021. Gathering
Information, data collection and analysis, and report.
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iii. Students: the study will improve on the research through acquiring knowledge on business accounting
and its efficiency on small scale businesses. The study will help researchers to fulfill the requirement of
awarded Diploma in business Administration of Ndejje University.
Government policies
Organisational policies
The independent variable is business accounting and the dependent variable is effectiveness of SME’S.
The null hypothesis is that there is no significant impact of business accounting on the profitability and
the alternate hypothesis states that there is a significant impact of business accounting on SME’S
adopting it.
1.10 Definition of the terms
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There are a variety of terms which needs to be described which relates to our research.
These include
Cost Accounting: It is the specialty of accounting that provides the calculation of unit and total costs.
Financial Reporting: Financial pictures that give information to internal and external stakeholders about
the company's activities.
Decision-Making: The manager must make a judgment about the future by using data and information.
Accounting: It is the information system that enables the monitoring of financial transactions based on
documents.
Internal Auditing: It is the internal auditors' control of the compliance of the company works with the
laws and principles.
Importance: this simply refers to the significance, relevance or the value of something to a group of
people. Given the fact that we are in a business study, importance thus capitalizes on the relevance of a
particular piece of work to an organization or individual in the organization
Impact: this simply means what cause or effect a variable has to another or others. We shall mostly be
seeing the impact of Accounting information System to Small and medium size enterprises in
Commercial.
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SECTION TWO
2.0 LITERATURE REVIEW
Introduction
This section considers literature relevant to the subject under study. It summarizes the information from
other researchers who have carried out their research in the same field of study. The specific areas
covered here are theoretical, conceptual and related literature review.
2.1 Theoretical Review
This section reviews theories that will guide the study. It consists of the theories governing business
efficiency of small scale businesses. This chapter cover about the SMEs provide the business advisory
services, service quality, challenges and service need by SMEs
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2.3 Small and medium enterprises in Uganda
In Uganda a ‘Small and medium’ is an enterprise employing up to 50 people, with an annual
sales/revenue turnover or total assets not exceeding Uganda shillings 360 million.
On the other hand Small Enterprises employ between 5 and 49 and have total assets between UGX 10
million and not exceeding 100 million.
The Medium Enterprise therefore, employs between 50 and 100 with total assets more than 100 million
but not exceeding 360 million.
The SME Division (SMED) of Uganda Investment Authority supports and facilitates the development of
MSMEs who are majorly domestic entrepreneurs. The overall goal of the SME division is: Developing
Sustainable Domestic Investments & SMEs
KEY TAKEAWAYS
• Accounting theory provides a guide for effective accounting and financial reporting.
• Accounting theory involves the assumptions and methodologies used in financial reporting, requiring a
review of accounting practices and the regulatory framework.
• The Financial Accounting Standards Board (FASB) issues generally accepted accounting principles
(GAAP) which aim to improve comparability and consistency in accounting information.1
• Accounting theory is a continuously evolving subject, and it must adapt to new ways of doing business,
new technological standards, and gaps that are discovered in reporting mechanisms.
Understanding Accounting Theory
All theories of accounting are bound by the conceptual framework of accounting. This framework is
provided by the Financial Accounting Standards Board (FASB), an independent entity that works to
outline and establish the key objectives of financial reporting by businesses, both public and private.
Further, accounting theory can be thought of as the logical reasoning that helps evaluate and guide
accounting practices. Accounting theory, as regulatory standards evolve, also helps develop new
accounting practices and procedures.
Accounting theory is more qualitative than quantitative, in that it is a guide for effective accounting and
financial reporting.
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The most important aspect of accounting theory is usefulness. In the corporate finance world, this means
that all financial statements should provide important information that can be used by financial statement
readers to make informed business decisions. This also means that accounting theory is intentionally
flexible so that it can produce effective financial information, even when the legal environment changes.
In addition to usefulness, accounting theory states that all accounting information should be relevant,
reliable, comparable, and consistent. What this essentially means is that all financial statements need to
be accurate and adhere to generally accepted accounting principles (GAAP). Adherence to GAAP allows
the preparation of financial statements to be both consistent to a company's past financials and
comparable to the financials of other companies
Cost accounting differs from financial accounting because its reporting is generally only used internally,
for decision making. Because financial accounting is employed to produce financial statements for
external stakeholders, such as stockholders, vendors or lenders, it must follow a specific set of accounting
rules and guidelines. Cost accounting does not, it is designed to get you information to help you
understand and manage your business. The most important aspect is the information must be relevant for
a particular situation and measure a product, process or service on a consistent basis. Therefore, you
have flexibility in how you design your cost accounting and reporting system.
Small businesses are able to make informed decisions after knowing the following:
Cost behavior. For example, will the costs increase or stay the same if production of your product or
service goes up?
Appropriate prices for their goods or services. Once they understand cost behavior, they can adjust your
pricing based on the current market or focus on the more profitable items.
They can create more effective budgets if you know the real costs of the final product or their services.
To monitor their company’s costs with this method, they need to pay attention, measure and allocate the
two types of costs in their business. fixed and variable.
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Fixed costs don’t fluctuate with changes in production or sales. They include costs such as rent,
insurance, dues, subscriptions, leases, loan payments and management or office salaries.
Variable costs do change with variations in production and sales. Variable costs include raw materials,
hourly & production wages, sales commissions, supplies and shipping or delivery costs.
Developing a robust cost accounting system can be a complex and time consuming project but doesn’t
necessarily need to be if they have appropriate and relevant information in their current system. The
extent and complexity of a cost accounting system is completely based on the unique aspects of the
company and management’s needs. We have seen the benefits of this will normally exceed the
investment in a system, if it is designed properly.
To enhance or get started developing a cost accounting system ask their team what financial
measurements would they like but do not have? Then develop a plan and a system to measure and report
this information. We would be pleased to help their identify and develop a cost accounting system to
enable you to make better decisions.
Ledger Accounts
The next step of processing transaction is to post journal entries to ledger accounts. To ensure that the
ledger accounts are up to date entries are posted as soon as possible. This might be daily, weekly,
monthly or when time permits. All entries must be posted to the ledger by the end of the reporting period.
This is necessary so accounts balances are current when financial statements are prepared. When entries
are posted to the ledger, the debit in journal entries occupy into the ledger accounts as debit, and credit
are occupy into the ledger accounts as credits as can be seen in the above. The following shows 4 steps to
post a journal entry •Identify debit account ledger, enter date, journal page amount and balance •Enter the
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debit accounts number from the in the Page Reference (PR) column of the journal •Identify credit
accounts in ledger, enter date, journal page, amount and balance •Enter the credit accounts number from
the ledger in the PR column of the journal. The posting process creates a link between the ledger and the
journal entry. This link is a useful cross reference for tracing an amount from one record to another.
The Trial Balance
The preparation of trial balance involve three steps
•list each account title and its amount (from ledger) in the trial balance
•compute the total of debit balance and the total of credit balance the total debit balance equal total credit
balances.
The total of debit balance equals the total credit balance for the trial balance as in above. If these totals
were not equal, then one or more errors exist. However, the equality of these two totals does not
guarantee that no errors were occurred. These errors post many difficulties on the small scale businesses
in which we refer to in our studies as challenges. These errors can be put into two; those that affect the
agreement of the trial balance totals and those that do not affect the agreement of the trial balance totals.
Balance Sheet
The purpose of balance sheet is to show the financial position of a given business entity at a specific date.
Every business prepares a balance sheet at the end of the months and most companies prepare one at the
end of each month. A balance sheet consists of listing of assets, liabilities and owners’ equity of a
business. The balance sheet date is important as the financial position of a business may change quickly.
A balance sheet is most useful if it is relatively recent. A Balance Sheet is a statement of the financial
position of a business which states the assets, liabilities, and owners' equity at a particular point in time.
In other words, the Balance Sheet illustrates your business's net worth. (Ward, 2012) Assets are economic
resources that are owned by a business and are expected to benefits future operations. Assets may have
definite physical form such as building, machinery or an inventory of merchandise. On the other
hand, some asset exists not in physical or tangibly forms but in the form of valuable legal claims or
rights; examples are amount due from customers, investment in government bonds and patent rights.
Liabilities; the person or organizations to which the debt is owed is called creditor. All businesses have
liabilities; even the largest companies often purchase merchandise, supplies and service on accounts. The
liabilities arising from such purchases are called accounts payables. Owners’ Equity; the owners’ equity
in a corporation is called stockholders equity. In this discussion, we will use the broader term “owner’s
equity” because the concepts being presented are equally applicable to the ownership equity in
corporations, partnerships, and sole proprietorships. Owners’ equity represents the owners’ claims to the
assets of the business. Because creditors’ claims have legal priority over those of the owners, owner’s
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equity is a residual amount. Owners are entitled to what is left after the claims of creditors have been
satisfy in full. Therefore owners’ equity is always equal to total assets minus total liabilities.
Summary
In summary, there is a lot evidence of studies that have been done in the past that shows a positive
relationship between adoption of quality accounting information and financial performance of Small and
medium sized enterprises both locally and globally.
SECTION THREE
3.0 METHODOLOGY
Introduction
This includes data collection, sources of data, data processing and limitation that the researcher faced.
The research was designed in such way that it helped the researcher to obtain analytical and descriptive
research design, largely based on documentary review, such as company’s records, Journals, business
reports, internet, textbooks, magazines, newspapers, etc. Data was processed and analyzed by making
reference to the available existing literature so as to compare and contrast different opinions presented by
different authors so as to identify gaps that exist in available literature.
3.1 Research Design
A descriptive research design will be adopted in this research. According to Bryman (2003), this is a
scientific method involving observing and describing the behavior of a subject without affecting it in any
way. A descriptive research design will be adopted because it allows for gathering in-depth information
that may be either quantitative (surveys) or qualitative (observations or case studies) in nature.
3.2 Study population
The study will comprise of a population of 3 small scale businesses each with working staff of 20
members not above .This will include all staff working in different department.
3.3 Sample size
Cooper & Schindler (2003) states that a sample size is the sum of entities in a given subset of a
population chosen for analysis. This study will apply Krejcie and Morgan table to determine the sample
size from a given population. The sample size of this study will therefore include 19 respondents.
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3.4 Sampling techniques
The researcher will use purposive sampling techniques and simple random sampling. Purposive sampling
will be used to select only key administrators with importance attached to their office. This means data
will be obtained from key informants about the subject matter. Simple random sampling will be used to
select respondents because of its minimization of bias results. This implies that all members of the
businesses will have equal chances of being selected. A combination of these two techniques will give a
wide range of responses.
3.5 Data sources
Data will be obtained from both secondary and primary data sources.
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inadequacy in terms of coverage, will necessitate the use of primary source for first data. Self-
administered questionnaire will be used and this will enable the researcher to cover a large population
quickly and at are reasonable cost.
3.5.2 Secondary data collection
Data collected from a source that has already been published in any form is called as secondary
data. The review of literature in any research is based on secondary data. It is collected by someone else
for some other purpose (but being utilized by the investigator for another purpose). For examples,
Census data being used to analyze the impact of education on career choice and earning. Common
sources of secondary data for social science include censuses, organizational records and data
collected through qualitative methodologies or qualitative research. Secondary data is essential,
since it is impossible to conduct a new survey that can adequately capture past change and/or
developments
Roston (2001) defines secondary data as that kind of data that is available, already reported by some
other scholars. Secondary data will include policy documents and abstracts of the various scholars
relating to the topic of discussion in this study. Secondary data for this study will be got from sources like
libraries, archived records from the businesses, government publications, online information, text books,
newspapers, and unpublished research reports because it will be readily available.
3.6 Data Collection Methods and Instruments
Both primary and secondary data will be used in this study. Primary data is the data collected directly
from actual experience, free from processing or any other type of manipulation (Mugenda & Mugenda,
2003). Yin (2008) as well, stated that primary data will be obtained by using qualitative data collection
tools (focus group discussions, observations and interview guide) and tools of quantitative data collection
(questionnaires).
3.6.1 Use of questionnaires:
Data will be collected by use of questionnaires. Questionnaires are commonly used to obtain important
information about the population (Orodho, 2005) especially when the respondents can be reached.
Cooper & Schindler (2006) observed that, a questionnaire defines the problem and the specific study
objectives of a study. The study will administer the questionnaire individually to all respondents. The
questionnaire will be administered by use of a drop off and pick up later method to the sampled
respondents. According to Cooper and Schindler (2006) the use of the Drop-off/Pick-Up (DOPU) method
results in significantly high response rates. In addition, the DOPU technique is an effective means to
reduce potential non-response bias through increased response rate.
3.6.2 Interviewing:
According to (P.V.Young, 2014) “interview may be regarded as a systematic method by which a
person enters more or less imaginatively into the life of a comparative stranger”. It is a mutual interaction
of each other.
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Interview is a technique of data collection, which is very popular and extensively used in every field of
research. The interview is, in a sense, an oral questionnaire. Instead of writing the response, the
interviewee or subject gives the needed information verbally in a face-to-face relationship. Interview is a
direct method of inquiry. The interviewee responds to these and the interviewer collects various
information from these responses through a very healthy and friendly social interaction.
7.0 Data collection instruments
7.1 Closed ended questionnaire
Close ended questions are defined as question types that ask respondents to choose from a distinct set of
pre-defined responses, such as “yes/no” or among a set multiple choice questions. In a typical scenario,
closed-ended questions are used to gather quantitative data from respondents. Closed-ended questions
come in a multitude of forms, but are defined by their need to have explicit options for a respondent to
select from. Closed ended questionnaires will help the researcher to obtain quantitative insights, to
restrict the responses and to conduct research with a large group of people.
7.2 Interview guide
The interview guide is a list of questions you will ask your participants during the interview. With a
structured interview, each participant is asked the exact same question in the same order, this can be
effective.
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Coefficient of 0.6-0.7 is a normally accepted rule of thumb that designates acceptable reliability and 0.8
or higher indicated good reliability.
9.0 Data processing, analysis and presentation
9.1 Data processing
Data collected from the questionnaires will be edited, coded, keyed and tabulated into SPPS.
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Appendix 2: Questionnaire
Impact of business accounting on small profitability of small businesses
Please give your opinion regarding the role played by accounting in your company on a
two point rating scale as "YES" OR "NO"
USE
YES NO
Speed
1 Accounting Information makes the communication easier among branches
2 It reduced the time spent on transactions.
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3 It made an integration and consistency among branches faster.
4 It performs work very fast.
5 It helps the management to take timely decisions.
Work Simplification
6 Accounting information brings simplification in work.
7 It stores and retrieves information easily.
8 It coordinates various business activities.
9 It eliminates the repetition of paper transactions and storage space.
10 It brings high efficiency in storage, classification, and analyses of data.
Quality Information
11 It provides accurate and valid information.
12 It makes the information more credible and understandable.
13 It provides adequate information at right time.
14 It provides cost effective information.
Profitability
15 Accounting information minimizes the cost of recording and interpretation of
data.
16 It helps in retaining valuable customers in the organization.
17 It contributes in inventory management.
18 It contributes in quality control.
19 It helps in reducing the costs of production.
20 It contributes in better supply chain management.
Source: Al-Dalaien, BOA. (2018). The Impact Of Accounting Information System In Effectiveness Of
Financial
Performance Of Selected Industries In Jordan, Unpublished Doctoral Thesis, Department Of Commerce,
Aligarh
Muslim University, Aligarh, India.
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