Accounting Information Management and Performance of Small Business Enterprises in Mbale Municipality

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1 International Journal of Empirical Finance Vol. 4, No. 1, 2015, Accounting Information Management and Performance of Small Business Enterprises in Mbale Municipality Eric Mabonga 1, Maena Daniel 2 Abstract The study sought to establish the relationship between accounting information management and performance of Small Business Enterprises (SBEs) in Mbale municipality. A cross sectional and co-relational design was used with sample of 134 SBEs. The respondents were owners and managers from the SBEs operating in Mbale Municipality. Data was collected using questionnaires. Analysis was done using frequency, analysis of variance and Pearson s correlation and conclusions were thereafter drawn. It was revealed that book keeping has a significant relationship with performance of SBEs. Accounting information use was found to significant relationship with SBEs performance. Accounting information storage also has a significant relationship. The Study therefore concludes that book keeping, information use and information storage as dimensions of accounting information management have a significant relationship on profitability as a measure of performance in SBEs. Researchers recommend that SBEs should use computerized accounting system which will enhance proper book keeping and storage of data. This will enhance efficient storage and eventual use of accounting information to foster the performance of SBEs. It is also strongly recommended that SBEs should make use of the available accounting information in decision making to enhance operation of their enterprises since it has a greater effect on their performance. Key words: Accounting information management, SBEs, and performance 1. Introduction Small business enterprises are widely defined in terms of their characteristics, which include the size of capital investment, the number of employees, the turnover, the management style, the location, and the market share. For developing countries, SBEs would generally mean enterprises with less than 50 workers. In Uganda SBE is a firm employing less than 5 but with a maximum of 50 employees, with the value of assets, excluding land, building and working capital of less than Ug.shs 50 million (US$ 30,000), and the annual income turnover of between Ugshs million (US$6,000-30,000) (Kasekende & Opondo, 2003). When the company plans its growth, it first looks at historical accounting data to determine trend in revenue production and understand how the company spends money. Accounting information is critical in determining how much the company can take on in liabilities and costs as it tries to make the right decisions on how to expand profitability. Accounting Information Management Accounting information management is simply the recording of financial transactions and events in an orderly way, storing and ensuring that these records meet the needs of the business (Eccles et al., 2003). It means the information should be accessible that is available when needed and in a useful format (Romney and Steinbart, 2012). Accounting information management requires that transactions and events that can be expressed in monetary terms be recorded in accounting books such as journals and ledgers among others 1 Lecturer Faculty of Business Administration and Management Uganda Martyrs University, Mbale campus 2 Assistant lecture Faculty of Business and Management Uganda Christian University, Mbale campus 2015 Research Academy of Social Sciences 53

2 International Journal of Empirical Finance (Sivalingam, 2004), thereafter processed until it becomes part of the financial statements at the end of the period (Wood & Sangster, 2012). It also requires that information be stored safely in different methods such as; file folders, lever arch file, expandable files and backups incase of computerized system. This information should easily be accessed when needed (Kelly & Epstein, 2009) for various purposes such as; planning, control, measuring and decision making (Riley, 2013). Record keeping further requires that accounting information should be recorded in a sequence known as the accounting cycle, which is a series of steps that an enterprise undertakes that begins with establishing the chart of accounts for that business and ends with closing the books for that business at the end of the accounting time period (Pearler, 2013). Information Use Information refers to processed data. The kinds of information needed by SBEs are numerous, but the most important ones are; records of services provided to customers and records of services performed for the business. Services to customers provide revenue in the form of cash, checks, or promises to pay which are recorded in journals. Goods sold to or services performed for a firm are its expenses of doing business and payments must be made for them. Payments are made to increase assets and reduce obligation (Megginson et al., 2006). For information to be useful, it must have seven characteristics such as; subjective value, relevance, timeliness, accurate, meaningful format, completeness and accessibility (Gupta, 2000). Businesses need such information for many purposes such as; planning, controlling, and decision making (Riley, 2012). Accounting information provides financial reports on daily and weekly basis and also provides useful information for monitoring decision-making process and hence the performance of the organization. Kurniawati and Hermawan (2012) contend that financial statement are used to measure the effectiveness of the accounting information continuous monitoring. Romney and Steinbart (2012) argues that usage of accounting information depends on the perception of the quality of information by the user. Quality of information depends on reliability form of reporting, timeliness and relevance to the decision. Effectiveness of accounting information system also depends on the perception of decision makers on the usefulness of information generated by the system to satisfy informational needs for operation processes, managerial reports, budgeting and control within organization. Aggregation of information is considered as means of collecting and summarizing information within a given time period (Choe, 1998). Accounting information are said to be effective when the information provided by them serves widely the requirements of the system users. Effective information should systematically provide information which has potential effects on decision making process. The effectiveness of accounting information has long been a subject of many researches (Chenhall & Morris, 1986, Mia & Chenhall, 1994). Chong, (1996), argues that integration of accounting information leads to coordination in organisation, which in turn, increases the quality of the decision. It is argued that the effectiveness of accounting information system depends upon the quality of the output of the information system that can satisfy the users needs. Information Storage As business events occur, data are processed and recorded in a traditional manual accounting systems, or in an automated system designed in the format of a manual accounting system. Increasingly, however accounting systems are built on underlying data bases of business event data. In this case accounting information along with other business information is stored in data tables (Gelinas & Dull, 2008). Everything done in business generates paper work that may be kept or not. One needs to decide what to keep in an organized way so that it can be accessed quickly when needed. An organization that keeps a computerized accounting system may not need to keep as much paper but still need paper trail in case something happens to the computer records. Filing cabinets are where one may store most records for current year and the prior 54

3 E. Mabonga & M. Daniel year. Older files may be stored in boxes in a warehouse or storeroom in case there isn t enough room in the filing cabinets. Many bookkeepers use four different methods to store accounting information such as; file folders, lever arch file, expandable files and media for storing back up computer data (Kelly & Epstein, 2009). Considine et al. (2010), accountingʼs role is to gather data about a businessʼs activities, provide a means for the dataʼs storage and processing, and then convert those data into useful information. Accounting information well stored is very useful, Romney and Steinbart (2012), stated that benefits of information are: reduce uncertainty; improve decisions; improve planning; and improve scheduling. Performance of Small Business Enterprises Business managers can assess the businessʼs performance using accounting information. Costs, prices, sales volume, profits, and return on investment all as accounting measurements (Williams et al., 2008). Performance of a business is how well or poorly a business is doing vis-a-vis owner- manager set objectives. Hence, for a firm to perform well and to be successful, it should set clear objectives, aim at quality management and be able to compete both in the short-and long-run. Long-term liability of a firm calls for measure of performance, which recognizes that, the proper control of the firm (Bernadette & Gavin, 2001). Financial indicators are very important and must be monitored and measured to learn about overall businesses performance. In order to measure financial key performance indicators, a business owner needs assistance from accounting professionals who can help in measuring financial indicators to estimate how well the company has performed in the past few months or year (Kurniawati & Hermawan, 2012). Choe (1998) further contend that the result that accounting information improve organizational profit by improving the efficiency and effectiveness of its supply chain. Profitability as a measure of performance is widely accepted and used by businessmen, financial institutions, management, and other creditors as they are interested in knowing whether or not the firm earns substantially more than it pays by way of interest Choe (1998) The primary objective of accounting is to provide information that is useful for decision making purposes for better results. This means that accounting information is relevant to managers if it is relevant available and timely. Warren, et al. (2005) also stated that the objective of accounting is simply to produce information used by managers to run companyʼs operation. Accounting also gives information about economic performance and companyʼs condition. Pearler, (2013) observes that accountingʼs role is to gather data about businessʼs activities, provide a means for the dataʼs storage and processing, and then convert those data into useful information. An accounting system consists of the personnel, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision makers (Williams et al., (2008). Accouting information when well prepared increase the effectiveness of a business. 2. Methods The study utilized a descriptive comparative, correlational, and cross sectional survey design. Cross sectional was employed, where data was gathered and described from different categories of respondents. A sample size of 134 SBEs were considered and self administered questionnaires were used to collect data for analysis. A Survey was appropriate to elicit information about attitudes that are otherwise difficult to measure using observational techniques. Simple random sampling was employed. The aim of the simple random sampling was to reduce the potential for human bias in the selection of cases to be included in the sample. Thus, simple random sample provided a sample that is highly representative of the population being studied. The Cronbach s alpha coefficient was used to test the reliability of the research instrument, the output statistics was The data were analyzed using summary statistics, such as frequency, percents, and means. The null hypotheses were tested using the t-test and analysis of variance. 55

4 3. Results Respondents International Journal of Empirical Finance The study examined and described the respondents who are involved in day to day running of SBEs and details are presented in table 1.1 below. Table 1 Respondents Status Frequency Percent Valid Percent Cumulative Percent Owners Valid Employees Total Source: Primary data The results reveal that most SBEs are managed by owners. These results could suggest that most of the SBEs are sole proprietorship and therefore owners engage in the running of their own businesses. Difference in Accounting Information Management among Sbes under Study This was intended to find out if there is a difference in accounting information management among SBEs in Mbale municipality Table 2: Difference in Accounting Information Management (Level Of Significance = 0.05) Status in business Mean t P-value Interpretation Decision on H o Owner 2.81 Rejected Accounting information management Source; primary data Employee Significant difference Results reveal that there is a significant difference in the level of business competitiveness among SMEs (p-value 0.00<0.05). Findings suggest that employee managers are better in accounting information management than owner managers. This could further suggest that employee managers can be better in using accounting information for decision making to enable SBEs to perform better and hence attain desired profitability. Table 3: Correlations Matrix of Accounting Information Management and Performance of Sbes Pearson Correlation 1 Bookkeeping Sig. (2-tailed) Accounting Information Use Accounting Information Storage Profitability Source: Primary data N 113 Pearson Correlation.606 ** 1 Sig. (2-tailed).000 N Pearson Correlation.661 **.737 ** 1 Sig. (2-tailed) N Pearson Correlation.350 **.569 **.399 ** 1 Sig. (2-tailed) N

5 E. Mabonga & M. Daniel Table 3 above presents the relationship between accounting information management and performance of SBEs. Accounting information management as mentioned above was measured in terms of book keeping, accounting information use and storage while performance was measured in terms of profitability. The findings showed that there exists a significant and strong positive relationship between book keeping, accounting information use, accounting information storage and SBEs performance where (r =.350, p<.01), (r =.569, p<.01), (r =.399, p<.01) respectively. The results therefore implying that proper management of accounting information facilitates the performance of the SBEs. These results are in line with Romney and Steinbart (2012) who contend that accounting information well stored is very useful to help in decision making. 4. Conclusion Basing on findings of the study, researchers conclude that appropriate management of accounting has a positive bearing on SBE s performance. Book keeping (recording of business transactions), information storage and information use, must be considered seriously by small business if they are to succeed in their business operations. Most SBEs were found not consistent in recording their business transactions and records were not well kept for others. In order to derive great benefits from accounting information management, owners and employee mangers should develop appropriate accounting information systems to ensure accounting information is well captured in the system, stored safely and can conveniently be retrieved for effective decision making. References Bernadette, P and Gavin, C.R., Turbulence, flexibility and performance of the long-lived small firm. University College Cork, Ireland: University of St Andrews, St Salvators College, St. Fife, Scotland, KY169Al, UK. Chenall, R.H. and Morris, D., The impact of structure, environment and interdependence of perceived usefulness of management accounting system, The accounting review, Vol.61:16-35 Choe, J.M., The effects of user participation on design of accounting information system. Information and management, Vol. 34: Chong, V., Management accounting systems, task, uncertainty and managerial performance: A Research Note, Accounting organisation society, Vol. 21: Eccles M.G, Julyan F.W. Boot G and Belle Van JP., The principles of business Africa: Juta and Co Limited Gelinas. J. Ulric and Dull Richard B., Accounting information systems. USA: South- Cengage learning. Gupta, G. Uma, Information systems. London: Prentice Hall. Kelly, Jane and Epstein, Bookkeeping work book for dummies. UK: Wiley and sons Ltd. computing. South western Kurniawati, E. P. and Hermawan, F. E. P., Accounting for small and medium enterprises (SMEs). Journal contemporary management research (Centre for Contemporary Management Research, Bharathidasan Institute of Management), Special Issue 2012, Louis, Kasekende, and Henry, Opondo, Financing small and medium-scale enterprises (SMEs): Uganda s Experience. BOU working paper. Megginson, C. Leon, Byrd Jane Mary, and Megginson, L. William, Small business management. New York: McGraw-Hill Irwin. 57

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