The Relevance of Bookkeeping in Sole Proprietorship
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Abstract on The Relevance of Bookkeeping in Sole Proprietorship
Bookkeeping in business operations are very important for controlling business activities and also for profit or loss determination. The failure of most businesses, especially sole proprietors within the first (5) five years of existence is partly attributed to the absence of bookkeeping of the business operation.
Sole Proprietorship is a type of business owned and operated by one person. It is the oldest, commonest and the most popular form of business ownership in Ghana. It is popularity among other reasons has been as a result of the numerous advantages it has over other forms of business ownership.
A sole proprietor must know what he owes, what he owns, whether he earns profit or make losses for the running of the business. In relation to this, why do sole proprietors not see the need to keep proper books of accounts is the question one may ask?
To find out the practice of bookkeeping among sole proprietors, a study was conducted to find out the relevance of bookkeeping in sole proprietorship under the topic “Relevance of bookkeeping in sole proprietorship: A case study of Tema West Municipality.
The main objective of the research is to find out whether sole proprietors in Tema West Municipality keep books of accounts for their businesses.
Based on the above objective, responses were obtained from the questionnaires that were administered, personal interviews and direct observations were also done.
The findings among others included the fact that the National Board for Small Scale Industries is ironically not well known by the sole proprietors at Tema West Municipality. Sole proprietors at the Tema West Municipality do not keep proper books of accounts.
It is recommended that bookkeeping by sole proprietors must be encouraged in all aspects of their business operations and to strengthen them financially to make them attractive to graduates.
The National Board for Small Scale Industries in Tema West Municipality must offer both financial and management advice to sole proprietors to enable them to continually be in business.
Chapter One of The Relevance of Bookkeeping in Sole Proprietorship
BACKGROUND OF THE STUDY
Sole Proprietorship is a type of business owned and operated by one person. It is the oldest, commonest and the most popular form of business ownership in Ghana. Its popularity among other reasons has been as a result of the numerous advantages it has over other forms of business ownership. Example of Sole Proprietorship is the kenkey seller. Sole Proprietorship is the easiest and the cheapest form of business unit to be established with few legal requirements. The owner enjoys all profit and he or she is also sure of his or her privacy since he or she is not under any obligation to publish his or her account for everybody to know the profit he or she is making.
On the assumption of office in the year 2000, President J. A. Kuffour dubbed his presidency “the Golden age of Business” and under his executive authority derived from 1992 constitution, he announced the creation of a new ministry for private sector development (MPSD) to translate this vision into reality. (Daily Graphic 24th January 2000).
At a National workshop on private sector development held at Elmina during January 18th – 20th 2002, it was concluded that private sector development must be seen as a necessary response to global opportunities and threats. Increasingly, according to the document of the workshop, survival in the open market requires the ability to compete. A competitive private sector can take full advantage of opportunities to participate in international trade and finance, such as the United States African Growth and opportunities Act. The document suggested that positive efforts are needed to address enterprise weaknesses reflected in the uncompetitiveness of Ghanaian business.
The collective failure of Ghanaian business among others is lack of research and development, poor quality and cost control, lack of managerial skills etc.
Currently, because most sole proprietors especially those in the Tema West Municipality do not keep records of their activities, they are only aware of what they owe but as to how much they
own they do not have much idea. The profit margin from currents operation as well as their financial position is also something they also have little knowledge about.
Using Tema West municipality as my case study, my intention is to find out sole proprietors perception and knowledge about accounting records keeping. Assess the current accounting record keeping operated by them and the impact it is having on the growth of their business.
STATEMENT OF THE PROBLEM
The importance of book keeping could be seen in the light of the following as submitted by SN and SK Maheshwari (1998), in their book „Advanced Accounting‟ Volume 1, on the need for accounting is all for a person who is running a business. He must know:
I. What he owes
II. What he owns
III. Whether he has earned a profit or suffered a loss on account of running the business
IV. What his financial position is, that is whether he will be able to meet all his commitments in the near future or is in the process of becoming bankrupt
In light of the above, the researcher was surprised to find out from her senior-sister who intentionally refused to pay a storekeeper for an item bought and pleaded with the storekeeper that he was going to bring the money. Two days elapsed and her sister sent the money only to realize that the owner of the store had forgotten about the debt she owed just because the storekeeper had no records on it.
Another incident that generated my interest in the topic was at a store in Tema Community One (1) market. A storekeeper was arguing one afternoon with a creditor about a debt. The later claimed the former owed, which the former also claimed to have paid for that debt. From the above issues, the following main questions are of interest.
In relation to the above is the question why do sole proprietors not see the need to keep proper or no books of accounts at all?
To find out whether sole proprietors in Tema West Municipality keep books of accounts for their business.
1. To determine the start-up capital of sole proprietors in Tema West Municipality.
2. To investigate whether the sole proprietors employ workers in their business or manage it themselves.
3. To determine the capital and the profit range of sole proprietors for the first five years.
4. To also determine the current capital range of the business.
5. To investigate whether the sole proprietors in the Tema West keep books of accounts.
6. To investigate the type or form of accounting records kept by sole proprietors.
7. To investigate how profits are determined and calculated.
8. To assess the educational background of the bookkeepers.
9. To investigate whether the sole proprietors are aware of the existence of NBSSI in Tema.
10. To determine the various financial and advisory services offered by the NBSSI and Business advisory Board to sole proprietors.
1. What was the start-up capital of sole proprietors in Tema West?
2. Do the sole proprietors in the Tema West Municipality employ other people in their business?
3. What was the capital and profit range for the first five years of sole proprietors in Tema West Municipality?
4. What is the current capital range of sole proprietors in the Tema West Municipality?
5. Do the sole proprietors in Tema West keep books of accounts?
6. What type or forms of accounting records are being kept by the sole proprietors in Tema West?
7. How do sole proprietors in Tema West determines and calculates profit or loss?
8. What are the educational backgrounds of the bookkeepers?
9. Do the sole proprietors in Tema West know of the existence of NBSSI?
10. What financial services and advisory services are offered by the National Board for Small Scale Industries to sole proprietors in the Tema West Municipality?
SIGNIFICANCE OF THE STUDY
The study is going to help the National Board fro small-scale industries (NBSSI) and their agencies to know the state of records keeping in sole proprietorship within the Tema West Municipality. This will help them improve on their advisory services to business, especially in terms of the need for proper records keeping as a means of evaluating business performance.
The findings of the study will help educational institutions offering courses in entrepreneurial studies to structure their courses to take care of the short comings or otherwise in records keeping among entrepreneurs.
Sole proprietors will realize the need for proper records keeping when the benefit becomes clear to them.
It will broaden the knowledge of the student covering the importance of records keeping by sole proprietors. It will also help the student in future research work as the knowledge acquired now could be built on in the future. Furthermore, it will help the Ministry of Finance to formulate policies and implement programmes aimed at helping sole proprietors to keep accurate records to enable government agencies to among other things, determine their profit for tax purposes.
SCOPE AND LIMITATION OF THE STUDY
For the purpose of this study, issues that will be discussed will be confined to the Tema West Municipality; Traders within the Municipality and the NBSSI office personnel will be of interest. The study is aimed at finding out if sole proprietors in Tema West Municipality keep accounting records, the type of records kept and the impact it is having on their business.
The time limit for the presentation of the work is one factor that prevented this research to cover or concentrate on more than one municipality so as to ensure that the work was completed on schedule.
Another factor is that some business owners were not willing to provide answers to questions relating to the growth of the business in terms of profit and others chose to give wrong information with the idea that they do not know what the information is going to be used for.
The research data were collected from both primary and secondary sources. The primary source of data was obtained from responses to questionnaires administered directly through personal interviews and direct observation.
The questionnaires were given to the sole proprietors to answer. Interview was also conducted. The secondary sources of information or data were obtained from a review of existing materials.
STRUCTURE OF THE STUDY
The whole study consists of five chapters.
Chapter One highlights the background to the study and explains the need and purpose of the study. It goes on to talk about the statement of the problems, objectives, the scope and the limitations.
Chapter Two gives a conceptual framework about the literature review.
Chapter Three describes the research methodology and how the research was undertaken.
Chapter Four deals with findings from data collected, presentation and analysis of the result.
Chapter Five is also centered on the summary, recommendations and conclusion drawn from the study as well as definition of terms.
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