Review of Related Literature

Putting Up A Small Business

In an article Easy Accounting Tips for Small Businesses written by
Allan Branch determines that his article containing tips are helpful not only to
accountants but also to businessmen. They can learn more about what their business
needs to improve with regards to accounting. The first tip that he mention is the KISS
(Keep It Simple Starting out) which is related to sole proprietorship; a simplest form of
entity and this form of ownership requires NO special communication or filings to
Internal Revenue Service until you have employees to work for you.
Over 90% of small businesses fail or change ownership within the first five
years. Plan your business to thrive but if it fails under a sole proprietor you simply stop
doing business., he added. People know that failure is a part of success, not until failures
continue to arise. People do business to earn profit and definitely not to face bankruptcy.
Branch stated a lot of tips and this is how he ended After you pass the five-year
hurdle, then you can talk with a CPA about another entity type that might save you taxes.
Again a simple bookkeeping entry transfers all of the business assets from the sole
proprietorship into the new entity without any tax penalties. Then quit your day job to
celebrate your new livelihood.
Just like big enterprises and multimillion companies, SMEs also strive to boost
their profitability. As a head start, an entity should carefully monitor the accounting
practices it employs. The accounting process plays a vital role in order for the company

to manage its finances. Measuring its net profit needs to be done in a fair way to help
assess the firms financial performance in accordance with the relevant standards.
According to Cooley and Edwards (1983), owners of SMEs consider profit
maximization as the most important financial objective. This has led to the argument that
SME owners pay attention to profitability and measurement of net profit when they
evaluate their firms performance.
According to (Pratheempkanth, 2011), in order for a company to increase its
financial performance with regard to capital structure the company should identify the
weaknesses of an investment because it is the indicator on which the management should
take decisions. In relation with this study the management of the food stalls should be
wise in all the investments that they have. As the saying goes the higher the risk the
higher the return, it simply means that there is no investment that is completely secured,
all investments have their own weaknesses and it is the company managements task to
identify the investment whether it is strong or weak and after that make the necessary
actions for the investment to have a good effect to the company.
(Pandian & Narendran, 2015) states that To improve the financial stability of a
company proper mixture of stake in the business between the owners and the creditors
have to be made in which significant pressure on future cash flow can be avoid. In
relation with this study, owners tend to rely on the creditors in raising their capital for a
business, the interest or stake of the owners and creditors should be made proportionately
for them to have a harmonious relationship. If the owners and creditors will have a
misunderstanding within the business, then it may cause pressure on the flow of cash in
the business and will result to a low progress in the financial aspect of the company.

Performance standards should be established and communicated to the

investors (Pratheempkanth, 2011). A company aims for a daily progress with regard to
its financial performance. And a factor contributing to the progress of a company are
investments, the company should have high investment standards for them to have a high
rate of return. This will also trigger the company to make wise investment decisions
because the standard for an investment is high so it will follow that the decisions of the
company should be high for it to complement with the standards and ro have a massive
effect on the progress of the financial performance of the company.
In an article entitled Disadvantages of Small Scaled Business, writer Neil
Kokumuller cited the following; First, Small companies don't typically have the name
recognition of larger businesses that gain exposure through more locations and
promotional efforts. Less visibility in the daily lives of people makes it more challenging
for small businesses to attract traffic. They have to work to develop a company image and
reputation from scratch, whereas a large chain enjoys an established reputation., second
Budget constraints are a significant small business hurdle. Small businesses don't have
the funds to put into research and development, advanced technology, marketing and
promotions and high-end inventory. All of these elements impact a company's ability to
develop, acquire and offer a high quality solution to customers. Small companies
sometimes have ad budgets of $5,000 to $10,000, which won't even get a television
commercial produced in many cities., third, Bargaining power inhibits a small
company's ability to get a low cost basis of resale products. Typically, large companies
can negotiate volume discounts and bulk pricing that reduce their cost per unit. A single
store doesn't have the same buying power as a company with hundreds of locations and

economies of scale., Forth Because of the bargaining power deficit and other cost
structure disadvantages, small businesses don't often compete on price against larger
competitors. They simply can't make enough money with a low price strategy and must
opt for differentiation in products or services. This increases the burden on a small
business to promote the strengths of its products and services, which can place stress on
its smaller budget.
In an article The importance of entrepreneurship in small businesses determines
that Small businesses are vital to the success of the economy. Not only as they provide
the success stories of the future, but also because they meet local needs. They also serve
the requirements of larger businesses for example photography services, printed
stationery, catering and routine maintenance.
There are various benefits that small businesses can offer. It can develop personal
relationship. With a small business you know who you are dealing with; you can 'put a
face' to the person you are in contact with. Person-to-person interaction is as important as
ever in building strong relationships. Small businesses will also respond flexibly to
problems and challenges. Large businesses may have set ways of operating and establish
procedures that are hard to change. Small businesses are often far more flexible. It can
also reach a quick decision on whether or not it can do what is required. They operate in
small premises with low heating and lighting costs, and limited rent and rates to pay. Low
costs result in lower prices for consumers. By contrast, small firms are able to make a
profit on much lower sales figures. They can therefore sell into much smaller markets:
e.g. a local window cleaner serving a few hundred houses, a specialist jeweler maker with
personal clients.

Press (2015) states that, As a small business owner, you can do your own
accounting, or you may want to hire someone. Whatever you choose, youll still need to
understand the accounting process, your books, and what they tell you about your
business. Monitoring the financial aspect of your business does require you to have at
least an understanding of accounting your transactions and sales, you cannot just rely on
your hired employees to interpret it fully for you. It may be complex and vague on your
part as an owner and a not inclined person for accounting, but you need to engage
yourself to everything that concerns your business. If you are to do your own accounting,
it will be vital to learn the science of accounting. Mere understanding of it would be
insufficient for it will not give you full satisfaction on what was really going on with your
business, unlike hiring an accountant, it will be more than handy on your party but will be
costly.
Also, according to Bragg, S. & Burton, E. J (2006) in their book Accounting and
Finance for Your Small Business relating to small business, the most common situation
in which a control point is needed is when an innocent error is made in the processing of
a transaction. There can be an extraordinary number of reasons why a transactional error
arises, which can result in errors that are not caught, and which in turn lead to the loss of
corporate assets. Controls act as review points at those places in a process where
transactional errors have a habit of arising. A process flow expert who reviews a
flowchart that describes a process will recognize the potential for some errors
immediately, simply based on his or her knowledge of where errors in similar processes
have a habit of arising. Many potential areas of asset loss will involve such minor or
infrequent errors that accountants can safely ignore them and avoid constructing any

offsetting controls. The need for controls also is driven by the impact of their cost and
interference in the smooth functioning of a process. (Braag, S. & Burton, E. J, 2006 p.77)
Hatten (2015) states that, The accounting process helps you to translate numbers
the language of businessinto plain English. CEOs or simply owners of small
businesses are not always after every detail of the numbers plastered on reports, they
always go on the bottom line of all the sales and expenses that have occurred. Theyre
often concern on the performance of their business, if it was a profit or loss on their part.
Translating or interpreting the numbers that a business obtained is the accountants
responsibility, they are the key to enlightenment and understanding of the users of the
common tongue.
According to Blanchard (2011), accounting procedures during the start-up phase
of a small business should be substantially different than they will be once the business
has achieved recurring positive cash flows. Complexity doesnt have to come your way at
the start of your business. You should first keep it as simple and as much as possible, lowcost. What should concern you the most should be the mere survival of your business
upon anything else, to generate cash or to improve sales to pay up expenses and order
supplies to run another cycle. You cant afford to pay an accountant at an early stage of
the business that would be the least on your expenses. Itd be beneficial if the owner itself
does the accounting beforehand, it is plain and easy to understand at the start up point of
the business compared if it somehow begins to expand and grow. A help from an
accountant will be necessary once the business succeeds.
According to the article 10 Things Shopping Malls Wont Tell You by Jonelle
Marte, More malls are investing in a tried-and-true tactic to get shoppers to stick around:

feed them. She also said that the longer families stay in malls, the more they consume
products or services provided inside the mall. In the interest of keeping shoppers in the
building, some malls are renovating their food courts to bring in more local eateries,
while others are opening new wings dedicated to high-end restaurants. Department stores
are also dedicating more square footage to food by adding and expanding restaurants.
Alongside with that, she stated that malls are devoting more space and money to their
food courts. Shoppers spend almost 20% more at a mall with a "good food court,"
according to a 2007 survey cited by Sharma. And good, medium or otherwise, shoppers
overall are spending more money on food at the mall, according to the International
Council of Shopping Center. Food courts brought in $792 per square foot in 2010, up 5%
from the year before; restaurants brought in $459 per square foot, up 4% from 2009.
There's another reason why malls are devoting more space and money to their
food courts. Shoppers spend almost 20% more at a mall with a "good food court,"
according to a 2007 survey cited by Sharma. And good, medium or otherwise, shoppers
overall are spending more money on food at the mall, according to the International
Council of Shopping Center. Food courts brought in $792 per square foot in 2010, up 5%
from the year before; restaurants brought in $459 per square foot, up 4% from 2009.
According to Business Start-Up & Resource Guide: Starting a Business in North
Carolina published by The North Carolina Small Business and Technology Development
Center, Buying a franchise Franchising has emerged as a popular way for potential
business owners to start a new business. A franchise offers advantages in name and
product recognition, proven operation procedures as well as volume purchasing power. In
this arrangement, the provider, or franchisor, contracts with you, the franchisee, to give

you the right to sell or distribute a service or product under the franchisors system in a
particular area. It has listed the advantages of a franchise which are: some require
relatively small capital investment with franchise financing, initial corporate support for
start-up, continuous management training and counseling, existing goodwill and brand
name appeal, standardized quality of goods/services, proven products and business
format , some opportunities require no prior experience in that business field, buying
power and programs, and development of advertising and promotions programs (both
local and national). Also the disadvantages of a franchise which are: complicated legal
negotiations, restrictions on purchasing, franchising fees, required to share portions of
business profits with corporation (sales/royalties), loss of personal control over some
aspects of operation, less freedom and opportunity for creativity, potential problems if
owner wants franchisor to buy franchise back limited control over pricing, product lines,
and suppliers, human resources policies may be instituted by corporation (potentially
unsatisfactory training programs), and actions by the corporation may affect business of
franchisee. (p. 20)
As Bazley, Hancock, and Robinson (2014) point out, The managers of small
businesses (e.g. typically owner-operators) are confronted by the need to make decisions
similar to the operational and strategic decisions of larger firms. Thus, as for large firms,
the making of good decisions will be influenced by the quality of accounting information
that is made available to small business managers and how well they use it. However,
unlike larger firms, a small business is constrained by the level of economic and human
resources that can be committed to acquiring accounting information and the financial
literacy skills that can be applied to analyzing and evaluating that information.

According to (Kim & Marion, 1995), homogenous goods are mainly determined
by prices or costs while differentiated goods are determined by product diversity. So it
could be interconnected to this research because the main focus of this study is to know
basically the strengths and weaknesses of selected food stalls. This simply means that if
the food stalls offer the same variety of products then the main factor to be considered by
the consumers is the price of the product being offered, because there are many option
and alternative that a consumer may consider in buying a specific product. Unlike if the
product is differentiated, there will be no choice for the consumer because the ones
offering the product are limited.
(New York Institute of Technology, Bahrain) states that a corporate governance
system can be a set of processes and procedures used to direct a corporations business.
Basically it means that there are many aspects that affect the performance of a firm. And
in relation with this study a firm should employ a corporate governance system in its
accounting procedures for the records to be clear and precise. And this system should be
the core of all accounting transactions happening inside and outside of the firm. It may
have no direct effect in the profit of the company but this system could help the firm for it
to be organized throughout its operation.
According to (Pandian & Narendran, 2015), The ability of an organization to
analyze its financial position is essential for improving its competitive position in the
marketplace. In relation with this study the firm may employ financial ratios in its
financial statements to know their strengths and weaknesses. Every firms target is to be
profitable so it is essential to know their position in the marketplace. The concept of the
New York Institute of Technology, Bahrain as mentioned earlier will have an impact with

these financial ratios because all the records of the company should be clear and precise
in order for the financial ratios to be accurate for the firm to know their position in the
marketplace.
(Tehrani, Mehragan&Colkani, 2012) performance evaluation is itself in the need
of some indexes through which to evaluate corporate performance, in fact it is a guide
form what it is towards what is should be. In relation with the previous paragraph one of
the indexes that should be considered is the financial ratios. It will be the guide for the
firm to know what is happening inside particularly with their financial performance. It
will also be the guide if the systems I.e.(accounting system) is functioning properly. And
lastly it will be the guide in making their future decisions that could help them improve
and progress.
As per dictionary the definition of a small business is an independently owned
and operated company that is limited in size and in revenue depending on the industry.
Most small businesses use less complex accounting system for them to make records of
everyday transactions easy.
He also gave six tips on how to keep business finances in order which the
researchers thought will be helpful for owners. First is keeping personal and business
finances separate. This will let those people to monitor their finances easier and will
avoid them in confusion that may lead to overstatement or understatement of revenues.
This will make tracking your spending far more complicated than it needs to be. Next is
to choose accounting software that makes sense for your business. Cloud-based tools
allow you to view real-time insights, and they can be accessed from anywhere at any
time. The ability to keep an eye on your finances on the fly gives you a great deal of

flexibility as a business owner. Today more than ever, there are lot of options to choose
from and if non satisfaction prospers with the current service, one can always make the
switch to another platform that better matches their needs. Most people aren't numbers
people, and will never be excited about them as much as accountants or bookkeepers are.
If managing your own finances is starting to get on your nerves, it's time to look into
hiring a qualified bookkeeper. Many entrepreneurs have a tendency to try to handle
everything themselves. But as with legal matters, the granular elements of small-business
accounting aren't usually within a business owner's wheelhouse. Monitoring finances and
projecting future revenue and expenses will enable to make better long-term decisions for
the business. Even if unexpected expenses do rise, if owners have been practicing
conservatism in spending, they shouldn't run into any major problems. To be organized
means planning ahead that includes creating a budget. A budget is not a tool for planning
out how every penny should be spent. Rather, it's a framework that you can use to help
you make clear-headed decisions, whether it's increasing your marketing spend, or
cutting expansion costs to keep your profits on track. Credit unions are invaluable to
small-business owners, especially since they are often willing to provide loans at
competitive rates. Some of the other advantages of credit unions include fewer
transaction fees and account service charges, as well as flexible, customized services.
Credit unions also keep profits within the community, and help budding entrepreneurs get
their dream businesses off the ground.

In an article entitled The 7 Key Metrics Every Business Owner should monitor,
tells that knowing these metrics will not just inform the business health but also monitor

how these metrics are performing on an ongoing basis. It also states that 28% of
businesses fail due to problems in handling financial structure of the company. There are
a different metrics that every business owner should know, including cash flow, accounts
payable, accounts receivable, direct costs, operating margin, net profit, and cash burn
rate.
Basically, cash flow measures the flow of the business money, which are the
inflow and the outflows. Know that the money that goes out of the business is negative
cash flow and the money that comes in is a positive cash flow. But most important is,
cash flow isnt your profit because profits and cash arent the same thing. Accounts
payable is the total of the bills that you have to pay, but that you havent paid yet. Its
important to track this metric so that you can manage your cash flow. After all, if you
cant manage your debts, you could risk defaulting. Tracking your accounts payable is a
critical component to managing your cash flow. As your business grows, you may be
spending money on different services for your business and you will receive invoices that
need to get paid. Accounts receivable is the amount of money that your customers
currently owe you for things that you have already sold to them. Essentially, its a total of
all of the invoices that you have given to customers but that have not been paid yet.
Tracking your accounts receivable is crucial to managing your cash flow. While your
sales might be going well, if your accounts receivable continues to grow and your
customers arent paying you fast enough, you could find yourself in a cash crunch.
Understanding direct costs helps you keep an eye on how much it is costing your
company to deliver its product or service. If your direct costs are going up, perhaps your
suppliers are starting to charge you more, or perhaps fuel costs are going up. When your

direct costs go up, it might be time to start looking for new suppliers or to try and cut
costs in your business. Operating margin shows you how good your company is at
generating income from normal operations of the business, after youve spent money on
marketing, sales, product development, etc. Net profit is understandably a metric that
youll always want to see positive, and as high as it can be. If this number is negative,
your business is probably in trouble. Youll need to check your cash flow to get an
accurate reading on not just your profit from sales, but the actual cash on hand your
business has to stay afloat. Cash burn rate is the rate at which a company uses up its cash
reserves or cash balance. This metric is designed to show you how fast youre burning
through your cash reserves or how youre maintaining a healthy balance from positive
cash flow.
In the study of Contracts, Externalities, and Incentives in Shopping Malls by
Eric D. Gould, B. Peter Pashigan, and Canice J Prendergast, it used a unique data set of
mall store contracts to analyze the complex economic issues that arise when stores a
placed together in close proximity within a large shopping mall. While shopping malls
economize on consumer search costs by bringing a large number of stores together in a
single location, they also create a complicated web of externality and incentive issues
between the store owners and the mall developer. They have come to conclusions that
first; mall contracts are written to internalize externalities to such an extent that space is
efficiently allocated in the mall. In that sense, their study shows how the ability to
contract on relevant variable (in their case, sales) can help to counteract the inefficiencies
sometimes characteristic of externalities. Second, is that they believe that the study makes
a contribution to the empirical literature on agency theory. It does so in the context of a

situation of team production, where the efforts of all relevant parties (anchor stores, nonanchor stores, and developers) affect sales on all their parts, subject to a budget balancing
constraint.
In a study entitled, The Relevance of Accounting Records in Small Scale
Business: The Nigerian Experience by Raymond A. Ezejiofor, Ezenyirimba Emmanuel
(Ph.D), Moses C. Olise, they stated that although small scale enterprises may not be able
to adopt elaborate systems of accounting, a number of small scale business kept no
records pertaining to their financial operations, finance, etc while some employed
professional accountants to keep proper accounting records of their business. The
accounting records keeping contribute to the performance of small scale business hence
small scale business not actually kept proper accounting records of their activities; they
could be encouraged by customized adaptive systems.
In a campaign made by Association of Chartered Certified Accountants (ACCA),
Accountants for Small Business, aiming to raise awareness of the value of professional
accountants in SMEs. It is through people, process and professionalism; accountants are
central to great performance. According to ACCA Governments are heavy users of
information about SMEs and become more so as their economies develop.

They

managed to make more of the healthier parts of the informal economies into the formal
sector through the use of better infrastructure and public institutions, as well as more
proportionate taxation and regulation (Schneider 2009). Obviously, governments have a
great deal to gain from business formalization, as this allows them to monitor and
anticipate tax revenues as well as to improve their control over the social impact of
enterprises. It is also synonymous to the building of a business finance function.

Business begin to become formal when they start to give an account of themselves to
the state or before the law signing contracts; acquiring licenses and permits;
demonstrating compliance with employment or other regulations; paying taxes and social
insurance contributions; tendering for government contracts.
According to ACCAs research (ACCA 2012a) also shows that financial
capabilities in SMEs are not just a consequence of growth, but one of its causes. Even
after accounting for turnover, headcount, age and sector, SMEs with well-developed
financial capabilities are much more likely than others to be growing rapidly (at over
30% a year over three years or more) and still retain a low or minimal risk rating .

Strengths and Weaknesses of Accounting System/Processes

Amanda McMullen stated in her article, The Strengths and Weaknesses of
Revenue Accounting System, that a small business typically keeps records of its
transactions using a revenue accounting system. Such a system allows the company to
record the money it receives during each accounting period. It is the process of recording
the revenue a business receives from financing, cash advances, investments and the sale
of goods and services. Some revenue accounting systems also deduct certain expenses
from the revenue received, such as the cost of producing goods or providing services.
Businesses use their revenue accounting systems to evaluate their financial situation
during each accounting period. They may also use these systems in tax preparation. In
preferring this kind of system lets business to monitor such revenues at any point in the
accounting period, this can also help if owners would like to see which source in the
business provides more revenue.

Hence, by using this revenue accounting will be

beneficial in comparing reports from multiple periods; it can also analyze changes in
revenue patterns and use the information in decision making. Also having a separate
accounting system devoted to revenue provides a business with better organization,
which can be helpful during tax preparation and corporate audits. Having such strengths
demand for weaknesses too, one of which is embezzlement if an employee has
unrestricted access to the company's accounts. Human errors are inevitable in any
business, making financial statements lead to bad decision making and may occur
complications when computing and filing for tax.
In the case of the study of PESTLE Analysis Contributor regarding the topic
SWOT Analysis, For small businesses, it is important to analyze all situations carefully
before taking any decision. That way, there will be fewer chances of making mistakes and
designing strategies that wont work. To help these businesses, there are analytical tools
available on of which is the SWOT Analysis. However, before starting this analysis, it is
best to know and understand first what this analytical method is all about. This analysis is
used to list down advantage and disadvantage that go against a particular condition.
In simple words, SWOT analyzes the Strengths, Weaknesses, Opportunities and
Threats that are associated within and outside the business considering all the aspects that
can affect the business and market. This way, business managers can understand whether
a certain situation has enough aspects in its favor and ultimately worth being pursued.
This assessment technique has proven an almost accurate outcome and greatly
useful insight to every business resources.

Accounting Process and Practices

As Oladejo (2008) points out, The achievement of the firms objectives is

greatly influenced by the application of accounting records. It is pivotal for a company,
may it be big or small, to implement the accounting processes in a manner that would be
beneficial. It can have a huge impact in the financial health of the company as a whole.
Reaching the objective need not compromise the effective application of practices in
dealing with the accounting and financial aspects of an entity.
Holmes and Nicholls (1998) concludes that the extent of accounting practices in
SMEs depend on a number of factors such as age of business, size of the business, and
the nature of the industry. They further point out that most SME owners and managers
engage public accountants to prepare required information.
In the article, Accounting for Start-ups: Cash-basis or Accrual basis by Jason
Chen, he has discussed each accounting method. He briefly defined each as first, CashBasis accounting means you only count revenue and expenses that you actually have.
and second Accrual-Basis accounting means you count pledged revenue and
expenses.. He stated that in dealing with the taxes, it is ideal to use the cash-basis
accounting method for the only basis of the tax is the cash you have on hand. You have
to pay taxes with cash. With cash-basis accounting, you show a profit only if you have
excess cash actually in your possession. If its in the bank, you can set it aside for taxes.
Not so with accrual-basis. If you get a huge purchase order from a new customer, that
would show as income; then the IRS wants their 30%, but since the customer hasnt paid,
you dont have the cash to pay., he said.
For better understanding of the business, the writes says that accrual method of
accounting is more ideal this time around. The trouble with cash-basis accounting is that

it has nothing to do with when you incurred the expense, but rather when you paid the
bill. You might have paid late (on purpose or otherwise). You might have paid early for a
discount. The bill might have appeared on weird days so it just so happens that you paid a
monthly bill twice in March and skipped April. Same with revenue at Smart Bear it
was common for a purchase order to be paid 5, 30, or even 90 days late. We won the
order the marketing worked, the sale was approved, tech support satisfied the end
users but who knows what in month the revenue would actually hit the bank
account., he stated.
According to Bragg and Burton (2006), accounting encompasses at least three
purposes: financial reporting, product or service cost reporting, and performance
evaluation reporting. Meaning, accounting largely contributes to business that will make
it last long term. Its one of the departments that must be maintained in order to support
the growth and maintenance of a business. It must be given importance for it could give
certain advantages against competitors, or if neglected, it could be the cause of a
breakdown or a loss at some point in time.
According to the article Small Business Accounting Procedures by Sheila
Shanker, Small business procedures regarding accounting are simple and focused,
decreasing possible confusion. Your business might set up procedures for paying bills,
receiving money, processing credit cards, entering data in accounting systems and
performing reconciliations. Often businesses compile procedures to create an accounting
manual, which help in training new personnel.
Under the Accounting Department procedures, Reconcile cash once a month
with bank statements. The reconciliation is usually signed off by a manager or a business

owner. Any corrections and adjustments should be made to cash accounts on the book
right away. Reconcile accounts receivable and payable monthly to make sure they agree
with the general ledger. Do financial reports the first week of every month for the prior
month--after all reconciliations are performed. A common financial report is the balance
sheet, showing cash, receivables and payables. The other standard report is the income
statement with income and expenses. Shanker added.
According to IDT Consulting, in the Food Franchise industry, the volume of
transactions that need to flow through an accounting system is monumental. For one
location alone, the business must handle issues that arise from massive amounts of data
entry and the need for the quick turnaround of financial statements to make important
business decisions. Multiply this already extensive amount of processing by several
locations and the mountain of data can quickly become unmanageable.
Consequently, a lot of time is spent each month just for manually tracking receipts and
dealing with payroll in order to provide companies with their month end financial reports.
These activities are usually time-consuming, lending to little to no value for the
companys basis for measuring and analyzing its financial performance.
Large corporations are not the only ones that cook the books. However, small
businesses are not usually overstating profit, but instead have a tendency to understate
earnings in the hopes of minimizing taxes. This can be detrimental to the small business
owner, and often the consequences of these actions are not revealed for many years and
the punishment or actions may be quite severe. (Wright, 2005 Small Business Guide,
p40) With that being said, it is very evident that the accounting processes and procedures

alongside with the acts to falsify and alter financial records employed by a company may,
if not all times, be just the same for small and large businesses.
Hussein (1983) noted that, a good accounting system is not only judged by how
well records are kept but by how well it is able to meet the information needs of both
internal and external decision-makers. In his view, Clute (1980) corroborated the
statement and maintained that it is common for qualified accountants to do a good job of
keeping records up to date but they fail to provide information needed by decisionmakers.
In an article Small Business Accounting, Big Deal by Michelle Wright, small
businesses are not usually overstating profit, but instead have a tendency to understate
earnings in the hopes of minimizing taxes. Many small business owners have turned to
the bank to finance capital expenditures only to be turned down due to past sales
performance. A reason that improper accounting is detrimental to as small business is the
potential for growth through investors or the opportunity to sell the business. If the small
business owner is looking for growth and seeks investors, the investors will want to see
past performance of the business. They too will rely on the numbers that have been
reported on the tax returns. It is important for small businesses to use proper accounting
practices. These practices involve properly recording all business receipts (yes, even
cash); making sure that only business expenses are included in the businesss financial
statements and on the tax return; and accounting properly for any debt incurred by the
business and for any loans that the business makes to related parties. In the end, proper
accounting practices and financial planning will prove to be more beneficial than the
short-term results of cooking the books.

According to the book Recordkeeping for Small Business by Alberta Economic

Development and Tourism, Bookkeeping can be defined simply as keeping daily records
of business financial transactions. These records include daily cash sheet, accounts
receivable and accounts payable ledgers and a synoptic (combined) ledger. It is therefore
important that you make a habit of bookkeeping every day, perhaps every morning with
your coffee. It only takes a few minutes, and it will help you to make better informed
business decisions. Records are kept for various reasons, one of them is to be monitored
of the daily cash transactions of the business, also to assess whether financial
performance is meeting the business expectation, projections and goals, to provide the
accountant the necessary information to easily and accurately prepare the income tax
return.