WACHEMO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

THE ROLE OF MODERN ACCOUNTING AND REPORTING ON

THE GROWTH OF MICRO AND SMALL ENTERPRISES (case
study micro and Small Enterprise ,Hossana Town)

A SENIOR ESSAY SUBMITTED TO DEPARTMENT OF ACCOUNTINGAND

FINANCE FOR PARTIALFULFILLMENT OF THE REQUIREMENT OF (BA)
DEGREE IN ACCOUNTING AND FINANCE

BY
DAMENE DANA

(ID NO : 7825 / 09)

ADVISOR :ELIAS M(MSc)
 JAN, 2019
HOSSANA ,ETHIOPIA
Table of contents Page
Acknowledgment.....................................................................................................I
Abstract....................................................................................................................II
List of tables.............................................................................................................III
Table of contents ……………...…………………………...........….....................
……………………IV
CHAPTER ONE
1. Introduction........................................................................................................1
1.1. Background of the study................................................................................1
1.2.Statement of the problem..............................................................................1
1.3.Objectives of the study..................................................................................4
1.3.1.General objective.....................................................................................4
1.3.2.Specific objective....................................................................................4
1.4.Significance of the study...............................................................................4
1.5.Scope of the study..........................................................................................4
1.6.Organization of the paper ...............................................................................5
CHAPTER TWO
2.Literature review................................................................................................6
2.1.Definition of micro and small enterprises......................................................6
2.2.Importance of micro and small enterprises...................................................6
2.3.Importance of accounting records.................................................................7
2.4.Origin of modern accounting...........................................................................7
2.5.Nature of modern accounting.........................................................................8
2.6.Challenges in keeping modern accounting records…....................................8
2.6.1.Cost..............................................................................................................9

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 2.6.2.Complexity...................................................................................................9
2.6.3.Time..............................................................................................................9
2.6.4.Accuracy.......................................................................................................9
2.7.Advantage of double-entry accounting............................................................10
2.8.Measuring of business performance...............................................................11
CHAPTERTHREE
3.Methodology of the study...................................................................................12
3.1.Research design...............................................................................................12
3.2.Target population.............................................................................................12
3.3.Sampling techniques......................................................................................13
3.4.Samplesize.................................................................................................13
3.5.Data type and source...................................................................................13
3.6.Methods of data analysis...............................................................................13
CHAPTER FOUR
4.Data analysis and presentation..........................................................................14
CHAPTER FIVE
5.Conclusion and Recommendation..................................................................25
5.1.Conclusion.....................................................................................................25
5.2.Recommendation............................................................................................27
Reference................................................................................................................28Appe
ndix...................................................................................................................VI

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5
 List of tables Page

Table 4.1.Gender...................................................................................................14
Table 4.2.Age.........................................................................................................14
Table 4.3.Educational level.....................................................................................15
Table 4.4.Business sectors micro and small enterprises engaged.....................16
Table4.5.Accounting record method.....................................................................16
Table 4.6.The enterprise preparing a financial statement....................................17
Table 4.7.Financial statements prepared by theenterprise..................................17
Table 4.8. Relevant information the business get from the mainoffice...............18
Table 4.9. Nature of theoperations........................................................................19
Table 4.10. The attitude of the owners in relation to profitable currently............19

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Table 4.11. Measurement in the performance of their business.........................20
Table 4.12. The person prepares the financial reports.........................................20
Table 4.13. For what extent prepare financial statement of thebusines.............21
Table 4.14. A benefit of accounting record in micro and smallenterprise...........21
Table 4.15. Benefit of book keeping records …....................................................22
Table 4.16. Advantage of accounting and reporting in micro and small
enterprises...............................................................................................................23
Table 4.17.Acceptance of modern accounting and reporting....................24

Acknowledgment

First of all I would like to praise the almighty of God who helped me from the beginning
to this end. Second and for most, sincere gratitude and appreciation goes to my advisor
Ato Beyene Gebremichael (MSc) for this detailed, thoughtful, comment and suggestion
from the very startup of the proposal to the ever and paper formulation. Third I would
like to thanks the micro and small business owners for their king and trustful provision of
data in the questionnaire being distributed. Fourth last and not least, I would like to
thanks my family for their ideas, and financial support. Finally, I would like to thanks
everyone who supported me at the preparation of this end.

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 Abstract

The main objective of this study is to assess the role of modern accounting and reporting
on the growth of micro and small business enterprises in wolkite town . The researcher,
used a stratified sampling, with 19 questionnaires were distributed to the sample
respondents of micro and small enterprises selected from for the study through taking
from each business sectors. The researcher has been identified that the role of modern
accounting and reporting as well as the challenges micro and small enterprises face in
keeping modern accounting and reporting. Thus, the study reviewed that modern
accounting and reporting uses as a tool of measuring and performance of the business
and the most serious problem of the micro and small enterprise sectors in the study area
to keep modern accounting and reporting are the knowledge to keep records, the cost of
maintaining the record. In order to minimize and alleviate the existed problems some
suggestions are recommended.

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 CHAPTER ONE

1. INTRODUCTION

1.1. Background of the study

According to (Boone and Kurtz, 2002), the natural progression of a business begins with
financing. All organization, profit oriented and for-profit uses accounting for many
activities. For instance, in financing activities, which help to start and expand
organization; in investing activities, which provide the assets it needs to continue
operating; and operating activities, which focus on selling goods and services and paying
expenses incurred in regular operations. Therefore, accounting plays key roles in business
environment for various purposes. It enables businesses to express future plans, to keep
track of what is happing, and helps businesses to make better business decisions and also
benefits to plan and control and motivate their employees, to evaluate the performance of
the venture, to evaluate the credit worthiness of the business. Public accounting provides
accounting services to individuals business firms for a fee. Most public accounting firms
provide three basic services to clients: auditing, or expanding financial records; tax

9
Preparation, planning, and related services; and management consulting, since they are
not employees of a client firm, public accountant are in a position to provide unbiased
advice about the firm’s financial condition. Management accountant are responsible for
collecting and recording financial transactions and preparing financial statements used by
firms managers in decision making. Management accountants provide timely, relevant,
accurate, and concise information that managers can use to operate their firms more
effectively and more profitably than they could without this input .In addition to
preparing financial statements, a management accountant plays to a major role
interpreting them. Government and not-for-profit accountants perform many of the same
functions as management accountant, but their analysis emphasizes how effectively the
organization or agency is operating rather than its profits and losses record (keoghn 2007)
Financial statements provide managers with essential information they need to evaluate
the liquidity position of an organization its ability to meet current obligations or liabilities
and needs by converting assets in to cash; the firm’s profitability, and its overall financial
health. The balance sheet, income statement, and statement of cash flows provide a
foundation on which managers can base their decisions. By interpreting the data provided
in these financial statements, the appropriate information can be communicated to
internal decisions makers and to interest outside the organization.
The role of modern accounting and focuses on micro and small enterprises for the
purpose of a good decision making to be made in accurate and complete financial
statements are needed as a result of good accounting records. The micro and small
business enterprises cannot make a decision on how to expand their business activities
without having proper accounting records. They also face difficult decide to scale down
or close down without knowing a good accounting records. Every micro and small
enterprises had not much amount of information how to record (Keogh, 2007).

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1.2. Statement of the Problem

The micro and small enterprises are recognized by Ethiopian government as integral
components of economic development and a crucial element in the effort to lift the
countries out of poverty. Micro and small enterprises are driving forces for economic
growth, job creation, and poverty reduction in developing countries .They also help
active participation every business activities and accelerated economic growth and rapid
industrialization coming to existence(Ministry of Trade and Industry,1997).
To improve economic growth micro and small enterprises in developing countries lack of
awareness. They produce largely for the low income group and employee lower level of
techniques. Many of them are self employed type with low transaction rate in the higher
size categorized and their innovation activities are limited (Gebrehiwot and
Wolday,2005).
However, the previous researcher, has written on the micro and small enterprises success
that the problems did not link business success with the relevance of modern accounting
and reporting on the growth of micro and small enterprises, which is a gap that exists
with respect to the topic in wolkite town. The need for this research work is to look the
role of modern accounting and reporting on the growth of some selected micro and small
business sectors in wolkite town by addressing the following questions.
Are modern accounting and reporting able to contribute to the measurement of
performance of micro and small enterprises in wolkite town?
What are the contribution of modern accounting and reporting in planning and growth of
micro and small enterprises in wolkite town?
What are the constraints and problems with regard to keeping modern accounting and
reporting in the micro and small business enterprises in hossana town

1.3. Objective of the study

1.3.1 General Objectives

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The general objective of this study is to assess the role of modern accounting and
reporting on the growth of micro and small business enterprises in hossana town

1.3.2 Specific Objective

The specific objectives are:-

To identify the contributions of modern accounting in the measurement performance of
the micro and small enterprise.
To examine the contributions of modern accounting and reporting in planning and growth
of the business.
To identify the major problems of micro and small business enterprises on modern
accounting and reporting.

1.4. Significance of the study

After the problem is identified, it has a significant to help the owner /managers/ of the
micro and small business enterprises to know the importance of proper record of modern
accounting and reporting on the growth of the business and to implement their day to day
operations of the organizations as well as most of the micro and small business
enterprises will be generated a high profit and it builds a good business performance by
improving the accounting and reporting (that means change the single entry to double
entry accounting system) through a good understanding of the benefit and importance of
modern accounting and reporting on the growth of the business from these research.

1.5. Scope of the study

This study focuses on the role of modern accounting and reporting on the growth of
micro and small business enterprises in wolkite town particularly on the two sectors that
is manufacturing and service from the total five sectors (manufacturing, construction,
urban agriculture, trade and service) exist in wolkite town. Because of the remaining of
three sectors has not maintained book account. Hence the researcher focuses only the
sector which maintain book keeping.

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1.6. Organization of the paper

This research paper is organized into five chapters. The first chapter deals with
introduction, which contain background of the study, statement of the problem, objectives
of the study, significance of the study, scope of the study, limitation of the study and
organization of the paper. The second chapter deals with related literature review. The
third chapter deals with methodology of the study, target population, sampling
techniques, sampling design, data source and type, and method of data analysis. The
fourth chapter deals with data analysis and presentation and finally the five the chapter
deals with conclusion and recommendation would be presented.

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 CHAPTER TWO

LITRETURE REVIEW

2 . Theoretical revuew

2.1. Definition of Micro and Small Business enterprises

The definition of micro and small enterprises can usually depending on the level of
capacity of subsiding of each country and from time to time. There is no universally
accepted the definition of micro and small enterprises. In our country, the definition of
micro and small enterprises is determined by ministry of trade and industry by evaluation
the situation of the time. When seen from the current development level and capacity, the
following definition to be applicable by the ministry of trade and industry. Accordingly :
micro enterprises, are those business enterprises with a paid up capital and high
technology establishment ,those business activities are indecently owned and operated,
have a small share of the market are managed by owners. The significance of small and
micro enterprises to the socio economic development necessitates the provision of well
structured support frameworks that would facilitate their growth and development. In
order to provide effective support services it would be important to define what is meant
by micro and small enterprises. However, the definition of small and micro enterprises
different from country to country (Ethiopian small and micro enterprises manual, 2011)

2.2. Importance of micro and small enterprise

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Small and micro enterprises are vital economic growth and development in both
industrialized and developing countries by playing key roles. Micro and small enterprises
are instruments of employment and income generation, human development, and poverty
reduction, export promotion, import substitution, stimulation of private ownership,
competition and entrepreneurship and donor agencies have been focused on the role of
micro and small enterprises(Adenuga,2004).The importance of micro and small
enterprises are as the engine of growth, essential for a competitive and efficient market
and provides of new employment by creating new jobs on many countries (Fan,2003).

2.3. Importance of accounting Records

Accounting is a vital aspect of any business, whether big or small. Complete and accurate
financial record is essential to business success providers of the financial data that helps
the business owners or manager to operate more efficiently on the country. Inaccurate
and incomplete records may results in false recording of the business assets, liabilities,
income, and expenses. Proper record keeping is vital for the preparation of financial
statements, such as the income statements (profit or loss) and cash flow to determine the
financial performance of the business (Seagren, 2007).The keeping of financial records
will aid a business to monitor its own performance and at the same time keep up with
legal requirements. The micro and small business owner will be able to known the
amounts of sales for the day, amount owed to the creditor and amount expected from
debtors. Without accounting, managers would not be able to measure the success or
failure of the business or to make the right economic and business decision
making(seagren,2007).

2.4. Origin of Modern Accounting (Double Entry)

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The history of double entry accounting is used as in the twelfth century. Historians
suggested that Guanine Domenic employed this system for this Medici bank. According
to the history of double entry, existing records strongly suggest that the modern use of
this system started during the fourth century. Business need to keep the track of the flow
of its money, expenses, debts, purchases, profits and other financial transactions. Double
entry accounting or one standard accounting system used by firms and organizations to
record all the financial transactions they have done. In this system each transaction is
recorded in at least two accounts, with one accounts being debited and the other one
credited. If the sum of the debited and credited items equals each other, then the item
transactions are accurate (mcmahon,2006).

2.5. Nature of the Modern Accounting

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Most business, even most small business use double entry accounting for their accounting
needs. The survivor of the business had effects on the owner’s ability to establish good
accounting and bookkeeping practices Companies record every transaction in their
accounting looks based on the double-entry system because every transaction involves
certain kinds of monetary exchanges between two business accounts. The term double-
entry system refers to the dual entries company's record in to the pairs of accounts.
Depending on the transaction, the value of each of the accounts increased or decreased.
So increase or decrease an account, companies make a debit or credit entry to the account
based on the account type. The essential point of the double entry system is to achieve a
recording balance between related accounts .A business transaction can be anything
involving an income statement account and balance sheet to use the double entry system
of accounting, companies must first determine the transaction and identify the related
accounts company may carry out transactions that are revenues or expenses related and
transactions that associated with assets, liabilities or equity. Thus, companies also grape
transaction accounts into accounts for revenue and gain, expenses and losses, assets,
liabilities and equity (Canon, 2002).

2.6. Challenges in Keeping Modern Accounting Report

Most of many small business entrepreneurs, the biggest problems do not know where to
start with business records, so none are kept. Keeping accounting and up to date financial
records is for many people the most difficult and uninteresting aspects of business
operations.
Most small businesses do not even keep the most basic cash book and are thus contented
with metal records about their costs, revenue, and debt. Poor quality accounting record is
a result of managerial competence that hinders the growth of the small business. Most
business peoples failed to track of their daily transaction and cannot account for their
expenses and profits at the end of the month. Keeping quality record is critical in
determine the survival or failure of business (Keogh, 2007).

2.6.1Cost

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The cost of maintain the books while using a double-entry system is directly related to
the system’s complexity, because records are kept in more than one place, companies
have books all over the place that they must keep track. In some cases is even becomes
necessary to hire additional employees to keep track books for each department. If the
business are using an accountant, the cost will group as the business books became
complex, requiring the accountant to bill the business additional hours of work, overall
the cost of the double-entry system can be high (Wondale, 2012).

2.6.2. Complexity

The major problems with the double-entry accounting method are the complex of the
process. For the small business owner who has no background in accounting, the double -
entry system can seem like learning a whole new language. Terminology such as
“Debits” and “credits” replace simple words like “subtract” and “add” causing contusion
knowing when to debit an account and what corresponding account to credit can be
difficult (Wondale, 2012).

2.6.3. Time

The amount of time spent doing and verifying the business books is another problems
directly related to the complexity of the double-entry method. Because entries have to be
done twice and verified twice, the double-entry system will eat up precious minutes that
the business doing productive in another end ever (Wondale, 2012).

2.6.4. Accuracy

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Overall the double-entry accounting system is important for small business owners it will
typically provide them with more accurate records than other methods. This is certainly
advantageous in most cases, but if the business don’t have much of a background in
accounting and the business try to do it all own using double-entry method. The business
may find itself somewhat dated or confused. A primary problem with the system is that if
the business make are mistakes along the wily, the accuracy of the rest of the books will
be thrown off (Wondale, 2012).

2.7. Advantage of Double-entry Accounting

An important element with in financial accounting is the ability to prepare financial

statements and reports. Double-entry accounting allows accounting departments to
prepare financial statements easily. Most accounting software programs utilize double -
entry accounting so the businesses receive an accurate report of accounts on the balance
sheet, income statements, cash flow and other financial statements and reports.
(Wondale, 2012).In contrast to single-entry accounting, double-entry accounting allows
for recording of assets and liabilities. In single-entry accounting, individual record
transactions are either revenue or expense. Double-entry accounting skill takes advantage
of the accounting equation in which assets equal liabilities plus owner’s equity. The
recording of assets, liabilities, and owners equity allows the business to prepare a balance
sheet. Balance sheet is an important financial statement within a company because it
shows the resources owned by the company and the financial obligations owned by the
company (Wondale, 2012).
One advantage of using double-entry accounting is that provides and balance, which
prevent fraudulent activity and reduces errors. It also prevents fraud in a greater way than
single-entry accounting because it makes it difficult to manipulate accounts. The business
won easily detect account information manipulation by examining the journal entries and
companies them to previous journal entries for the same or similar transactions both sides
of the accounting equation must balance. Therefore, preparing martial balance to check
for mathematical errors. A trial balance is a list of the account is passed to the general
ledger. It is important to note that
Double-entry accounting will not catch all errors (Wondale, 2012).

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2.8. Measuring of Business Performance

Information on performance is required in order to losses potential change in the

economic resources that the business is likely to control in the future. The quality of
record keeping influences the performance in the micro and small enterprises. There is a
relationship between the quality of record keeping and performance in the micro and
small enterprises. Performance measurements are used to measure progress towards
goals, appraise individual performance and losses performance system and procedures.
Measures should be robust, simple and reliable arise naturally from operational be limited
to controllable factors, hierarchical and cover on appropriate period. Performance of
business is how well or poorly a business is doing vise-a-visa owner or manager set
objectives.(Bernadette and Gavin,2001).

2.2 Emperical Riveiw

According to keogh(2007) the role modern accounting and
reporting on the role of micro and small enterprise in
employement and income generation is increasing and has
become the major playing filed for policy makers .this study
investigates some key determinantes of success and particular
employement expension ameung major enterprise based on
sense covering of 74 randomly selected business in six major
town in ethiopia (Jared lewis,2002).

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Emperical reviews literture on micro and small enterprise is
scant in sub saheran Africa and the gap is even more evident
when it cames to micro and small enterprise (seogren ,2005).
According to Gebrehiwat and woldly(2003) the role of modern
accounting and reporting on the growth of micro and small
enterprise we know in a large business seting connect
awtomatically be expect to transfer to small enterprise seting
to whight and it allower that get gaing in micro business (Jared
lewis ,2002).
Keogh(2007) collected emperical evedency about the
accounting practice of small and micro business and found that
while of small business prepared o profit or loss statement
only. the micro business did reported that while ABC contered
studies had generally will be consulesive and unable to link
ABC adopition.

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 CHAPTER THREE

3. RESEARCH METHODOLOGY

This chapter describes the methods and procedures that would follow in conducting the
study. It describes the sampling design, target population, sampling method, sample size,
sampling techniques, data source and type, and method of data analysis. It goes on to
explain the data collection procedure, and data analysis techniques being involved in the
study.

3.1. Research design

A research design is the conceptual structure within the prospective design to conduct of
the respondent and cross sectional design to collect an appropriate and current data where
the research is conducted; it constitutes the blueprint for the collection measurement and
analysis of data. In order to achieve the main research objective the researcher use
qualitative data approach. The data involved both closed and open ended questions. The
researcher has been used a simple design method because it is used to answer questions
that have been raised, to solve problems, pose or observe, to assess the needs and set
goals, to determine whether or not specific objectives have been met, to analysis and
generally to describe what exists.

3.2. Sampling techniques

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 In Wolkite town, the micro and small enterprises comprise five (5) groups. These are
construction, manufacturing, urban agriculture, services and trade. The researcher has
been selected only two sectors ( that is trade and service) purposively to be conducted the
research. Because of only two sectors has maintain book accounting from the whole of
five sectors. The researcher has been used a stratified simple random sampling
techniques and through selecting sectors such as trade and service .Because the micro and
small enterprises has been categorized or grouped based on their similar activities(that is
trade and service). Then the researcher used each groups as a strata and the sample
selected from each strata. So stratified simple random sampling techniques is the most
appropriate sampling techniques for the researcher rather than use other sampling
techniques.

3.3. Target population

Target population refers to the totality of all conceivable elements or subjects relating to
particular phenomena of interest to the researcher. The subject or elements are the
individual items that makeup the population, which may be observe or physically will be
counted. The target population of the study was micro and small enterprises found and
registered in Wolkite town .

3.4. Sampling size

In this study the researcher used stratified simple random sampling by taking each
sectors as a strata means that dividing based on their activities that is from the total
population of 150; service 50, and trade 100, the researcher has been used a sample size
of 30 enterprises.

3.5. Data source and type

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 The researcher has been used primary sources of data. The primary data collected from
respondents through distribution questionnaires. In this study, the researcher used
qualitative data types. Qualitative data type focused on difference in quality than
difference in quantity can provide a deeper understanding of mechanisms. Since, the
researcher has been used qualitative data in this study.

3.6. Methods of data analysis and interpretation

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 Data analysis is an effective presentation of results as important elements of a credible
and successful survey (Isaac and Michael, 1997). The researcher, has been used Simple
statistics of data analysis such as measure of frequency, percentage, and to interpret and
use in tabulation form.

CAPTER FOUR

4. DATA ANALYSIS AND PRESENTATION

Data for the analysis in the study were collected from (24) owners managers of micro and
small enterprises out of a sample size of(24) micro and small enterprises located in
Wolkite town .
General information
Focused demographic information about the respondents and data gathered mainly
pertained to the respondents as individuals namely gender, age, and level of education.

Table 4.1. Gender

Question Respondents Frequency Percentage (%)

Sex Male 18 75%

Female 6 25%

Total 24 100%

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 (Source: survey conducted, 2018)
As shown in the above table 4.1, the respondents consisted of 75% (18) of males and
25% (6) of females. Even though the gender was not evenly distributed, were fairly well
represented in the micro and small enterprises.

Table 4.2. Ages

Question Response Frequency Percentage (%)

Age Below 25 years 10 41.67%

26-30 years 12 50%

Above 31 years 2 8.33%

Total 24 100%

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(Source: survey conducted 2018)

As the above table 4.2 shows that, the respondents came from wide range age groups.
The 41.67% (10) of the respondents were aged below 25 year, the 50% (12) of the
respondent was aged between26-30 year, and the 8.33% (2) of the respondent was aged
above 31 years . From the above table shows that the age distributions pertained that they
were matured individuals and adults are actively engaged in micro small business sectors.

Table 4.3. Educational level

Question Response Frequency Percentage (%)

Level of education Certificate 12 50%

Diploma 8 33.33%

Degree 4 16.67%

Above 0 0%

Total 24 100%

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(Source: survey conducted, 2018)

As the above table 4.3 shows that, about 50% (12) of owners and managers of micro and
small enterprises education level is certificate; about 33.33% (8) of owners and managers
of micro and small enterprises education levels are included diploma and the remaining
of the 16.67% (4) of owners and managers of micro and small enterprises educational
level are included degree. However, most of the owners and the managers of micro and
small enterprises educational levels were included in certificate and none of them are
included in above degree.

Table 4.4. Business sectors of micro and small enterprises engaged

Question Business sectors Response Percentage (%)

What is the type of business Manufacturing 14 58.33%

sector in which you are Services 10
involved? 41.67%

Total 24 100
%

(Source: survey conducted, 2018)

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The above table 4.4. Shows that, type and numbers of micro and small enterprises on
which the research has been conducted manufacturing and service. About 58.33% (14)
of the respondents were doing manufacturing sector and the remaining of about 41.67%
(10) of the respondents were doing in services sector.

Table 4.5. Accounting record method

Question Respondents frequency Percentage (%)

What kind of accounting Single-entry 16 66.67%

records does your
Double-entry 8 33.33%
business apply?
24 100%
Total
(Source: survey conducted, 2018)

Table 4.5 shows that about 66.67% (16) of the respondents responded that, the micro and
small business enterprises used single-entry accounting method for their business
transactions and the remaining of 33.3% (8) of the respondents said that they used
double-entry keeping records. The reason behind the use of single-entry system in
accounting is due to its simplicity and low level of accounting skill. Generally, from the
above table most of micro and small enterprises applied single-entry accounting record.

Table 4.6. The enterprises preparing a financial statement

Question Respondents Frequency Percentage (%)

Have you prepare Yes 18 75%

a financial statement No 6 25%
in your business?
Total 24 100%

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 (Source: survey conducted, 2018)

As above table 4.6 shows that, about75% (18) of the respondents of micro and small
business sectors responded that the enterprises prepared formal financial statement and
the remaining of
About 25% (6) of the respondents responded that, the micro and small business
enterprises could not prepare formal financial statement, because of it is costly and due to
unawareness of it.

Table 4.7. Financial Statements prepared by enterprises

Question Financial statements Respondents Percentage (%)

What kind of Income statements 4 16.67%

financial statements Balance sheet 5 20.83%
do you prepare?
Cash flow 12 50%

Owners equity 3 12.5%

Total 24 100%

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 (Source: survey study, 2018)

From the above table 4.7 shows that, about16.67% (4) of respondents responded that
prepared the micro and small business enterprises prepare income statement, about 50%
(12) of the respondents responded that, the micro and small business sectors prepared
financial statement of cash flow, about 12.5% (3) of the respondents responded that, the
micro and small business enterprises prepare statement of owners equity, and the
remaining of about 20% (6) of the respondents responded that, the micro and small
business enterprises prepare balance sheet statement. Thus, can conclude that almost all
micro and small business sectors are prepare statement of cash flow.

Table 4.8. Relevant information the business gets from the main office
Question Respondents Frequency Percentage (%)

Do you get the necessary information Yes 8 33.3%

periodically to run your business from No 16 67.7%
the main office?
Total 24 100%

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(Source: survey conducted, 2018)

In the table 4.8 above shows that, about 33.3% (8) of respondents stated that, the owner
of the micro and small business enterprises they get relevant information about the
operation of the business from the main office, but the majority of
67.7% (16) of the respondents replied that, the owner of micro and small business
enterprises they cannot obtain any relevant information about how to run their business
from the main office.

Table 4.9. Nature of operation

Question Nature of operation Frequency Percentage (%)

What is the nature of Performance related information 10 41.7%

information you get Pattern of the business growth 6 25%
from the main office?
Business operation 8 33.3%

Total 24 100%

32
 (Source; survey conducted, 2018)
In the above table 4.9 shows that, 41.7% (10) of the respondents responded that micro
and small business enterprises obtain that performance related information, about 25%
(6) of the respondents responded that, the micro and small business enterprises obtain that
pattern of the business growth and the remaining of about 33.3% (8) of the respondents
responded that, the micro and small business enterprises were obtain that business
operation information from main office. The majority of micro and small business
enterprises were obtained that business operation information from the main office.

Table 4.10 The Attitude of the owners in relation to profit currently

Question Response Frequency Percentage (%)

Do you believe that your business Yes 14 58%

is profitable currently?
No 10 42%

Total 24 100%
(Source; survey conducted, 2018)
In the above table 4.10 shows that, about 58 % (14) of the respondents said that their
micro and small business enterprises is profitable currently and also about 42% (10) of
the respondents responded that, the micro and small business enterprises are not
profitable know in normal course of business. Thus, it is possible to conclude that higher
gap exists between what micro and small enterprises wants to do and currently ongoing
on.

Table 4.11. Measurement in the performance of their business

Question Measurement Frequency Percentage (%)

How do you measure the Amount of sales 15 63%

performance of the Number of customers 3 12%
business?
Comparing revenue 6 25%
and expense

Total 24 100%

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 (Source; survey conducted, 2018)

The above table 4.11 shows that, about 63% (15) of the respondents responded that, the
owner or the managers of micro and small business enterprises are measured their
profitability by using amount of sales, about 12% (3) of respondents responded that the
owner or managers of micro and small business enterprises are measured of their
profitability by using number of customer's. On the other hand, about 25% (6) of
respondents responded that, the micro and small business enterprises measured their
profitability by comparing revenue and expense. But most of the micro and small
business enterprises are measured their profitability by using amount of sales of the
business operation.

Table 4.12. The person prepare financial statements

Question Persons prepares Frequency Percentage (%)
financial report

Who prepare Owners 15 62.5%

financial statements Temporary 5 20.83%
for your business accountant
organization?
Permanent 4 16.67%
accountant

Total 24 100%

34
(Source; survey conducted, 2018)
In the above table 4.12 shows that, about 62.5% (15) of micro and small enterprises
financial statement is prepared by owners. The rest of 20.83 (5) of the respondents
responded that financial statement is prepared by hiring a temporary accountant, and the
remaining of about 16.67% (4) of the respondents responded that the financial statement
prepared by hiring a permanent accountant.

Table 4.13. For what extent prepare financial statement of the business .
Question Response Frequency Percentage (%)

For what extent prepare financial Monthly 14 58.3%

statement in your business? Quarterly 4 16.7%

Semi annually 4 16.7%

Yearly 2 8.3%

Total 24 100%

35
 (Source; survey conducted, 2018)

In the above table 4.13 shows that, from the total number of (24) respondents, the 58.3%
(14) of respondent responded that, the micro and small business enterprises are prepared
the financial statement in each of month per a year, the 16.7% (4) of respondents
responded that, the micro and small business enterprises are prepared their financial
statement for quarterly per a year, the 16.7% (4) of the respondents responded that, the
micro and small business enterprises are prepared their financial statement for
semiannually per a year and the remaining of 8.3% (2) of respondents responded that the
micro and small business enterprises are prepared their financial statements only at the
end of the fiscal year.

Table 4.14. Benefit of accounting record in micro and small enterprises

Question Response Frequency Percentage (%)

Do you believe that you have obtained a Yes 15 62.5%

benefit by using accounting records on the No 9 37.5%
growth of your business?
Total 24 100%

36
 (Source; survey conducted, 2018)
The above table 4.14 shows that, majority about 62.5% (15) of respondents were said that
accounting recording is benefit because it enables us to know the profitability of our
organizations', helps us to determine revenue and expense, and 47.5% (9) of the
respondents said accounting recording is not benefit. Beside this, when the respondents
said that using daily recording and counting our assets and liabilities to run and evaluate
our assets and liabilities. And also we examine that whether or not that internal control
over account receivable and payables are adequate, the recorded receivables and payables
are valid (existence and rights), and all receivables and payables are recorded
(completeness).

Table 4.15. Benefits of recording book keeping

Question Benefit of accounting recording Frequency Percentage(%)

What benefit do Helps to know the profitability of the 5 21%

you believed that organization
by using accounting Enable to know the revenue and 13 54%
recording system? expense of the organization

It enable to report financial 6 25%

statements

Total 24 100%

37
(Source: survey conducted, 2018)

From the table above 4.15, shows that about 21% (5) of the respondents have been
believed that using book keeping is important to know the profitability of the
organization and it helps to. About 54% (13) of the respondents responded that using
book accounting is necessary to evaluate the revenues and expenses of the organization
easily. On the other hand, about 21% (6) of the majority of the respondents have said that
using book keeping is crucial and accurately enables us to report financial statement. .

Table 4.16. Advantageous of modern accounting and reporting in micro

and small enterprises
Question Response Frequency Percentage(%)

Do you accept that the modern Yes 14 58%

accounting and reporting always
No 10 42%
advantageous in your business?
Total 24 100%

38
 (Source; survey conducted, 2018)
The above table 4.16 shows that, from the total number (24) of respondents are conducted
in the survey, the 58% (14) of the respondents responded that, the modern accounting and
reporting is always advantageous in micro and small business enterprise due tomizing,
time saving as well easy to understand to the users. But the remaining of 42% (10) of the
respondents responded that, the modern accounting and reporting is not always
advantageous in small business and enterprises. Because of there is needed of highly
skilled man power and cost to perform the modern accounting and reporting. So due to
the shortage of resource and skilled man power in micro and small business enterprises
the modern accounting and reporting is not always advantageous in micro and small
business enterprise.

Table 4.17. Acceptance of modern accounting and reporting in micro

and small enterprises

Question Acceptance Frequency Percentage (%)

How to the acceptance of modern High 8 33%

accounting and reporting in your Medium 14 58%
business activities?
Low 2 9%

Total 24 100%

39
 (Source: survey study, 2018)

From the above table 4.17 shows that, from the total number of (24) respondents, about
33% (8) of respondents responded that, the acceptance of modern accounting and
reporting in micro and small busin3s enterprises is high , about 58% (14) of the
respondents are responded that, the acceptance of modern accounting and reporting in
micro and small business enterprises also medium and th3 remaining of 9% (2)
respondents responded that, the acceptance of modern accounting and reporting in micro
and small business enterprises is become low. Because of the modern accounting and
reporting needed skilled man power (that is an accountant) and cost to perform the tasks,
but the owner of the business is not the a ability to employee the accountant due to the
low level of annual income with in respect to the salaries (fees) the accountant.
The researcher analysis of open ended question as follows :
According to the respondent responded that, the micro and small business enterprises are run and
evaluate their asset and liabilities by preparing of balance sheet statement in your business
activities. According to the respondents responded that, when the micro and small
business enterprises are know the revenue and expenses through preparing of income
statement and balance sheet financial statement and by maintaining book keeping (daily
recording books). According to the respondents responded that, the micro and small
business enterprises are know their capital through preparing of capital/income statement
in the business day to day activities

CHAPTER FIVE

5. CONCLUSION and RECOMMENDATION

5.1. Conclusion

40
The researcher has tried to study and explain the role of modern accounting and reporting
on growth of micro and small enterprises in wolkite town . The researcher has concluded
that, raising from the data has interpreted or analyzed in the previous chapter ( that is
chapter four) the micro and small enterprises in wolkite town has maintained a limited
accounting records or book keeping that is traditional accounting records as far as their
level of education skill allows. These accounting records were arbitrary maintained as
there was no regulation how they should be maintained and there is no give a proper
training to the owner of micro and small enterprises how to they maintain the modern
book keeping in its business.
Some of the micro and small enterprises in wolkite town aware that proper keeping of
accounting records enhance profitability and performance, though most of them did not
keep it; the problems which limit maintaining accounting records, and basically it
maintain one type of financial statement, but not prepare all financial statement by micro
and small enterprises are due to their belief that has cost to maintain, lack of accounting
knowledge, unaware of the importance of keeping records and exposes financial position
and also to pay more tax. Hence the researcher concluded that, the lack of accounting
knowledge and lack of awareness of the importance of book keeping records of the
owners of micro and small enterprises leads to maintain the traditional accounting
records.
Depend on the analysis; the researcher concluded that, most of the owners of micro and
small enterprises is not get sufficient training and available information from the main
office about how to they run their business effectively and efficiently. Hence this is leads
to low profitability of the business. And the researcher concludes that most of the micro
and small business enterprises measure their business performance by the amount of sales
and the financial statements prepare per month by owners. So this indicates that there is
no strong financial statement and good performance measurement in most micro and
small business enterprises.

41
The researcher concludes that, most of the time micro and small enterprises believed that
keeping record is benefited to plan and growth their business, especially enables to know
the revenue and expense of the business and their profitability and their acceptance of
modern accounting and reporting is a medium level. But it does not prepare modern book
keeping records. As a result, the simplicity of single entry (traditional) accounting
system, most of micro and small enterprises uses single entry accounting system.
Based on the analysis, the researcher conclude that the constraints and problems of with
regard to keeping modern accounting and reporting in micro and small business
enterprises are included the un availability of periodic information from the main office,
lack of knowledge or skill of the owners, absence of permanent employee to prepare the
financial statement and maintain modern accounting and reporting and it fears the tax
imposed by government, when you prepare modern accounting records or book keeping
maintained. Due to these reasons most of micro and small business enterprises shall
maintained or prepared traditional book accounting and reporting that is called single
entry book keeping.

5.2. Recommendation

On the basis of major finding of the study, the following recommendation have been
drawn with the view to improve the contribution of modern accounting and reporting for
the growth of micro and small enterprises in wolkite town .

42
The Major purpose of any business is to make profit, but without effective accounting
recording system, it becomes very difficult to determine the accurate amount of profit and
loss made at the end of the year. Therefore, micro and small enterprises shall be
maintaining the appropriate keeping record to their day to day business activities and the
owners of micro and small enterprises need to take greater responsibility to their own
learning and they shall attend training programs organized by universities and
government agencies about importance of a record keeping and reporting. But the
government agencies and the universities as well as any other educational institution will
be given a chance for the owners of micro and small business enterprises to improve
their awareness and knowledge or skills about how to they prepare or maintaining the
modern accounting and reporting in your day to day business activities.
The use of single entry system has its own many limitations that out weights its
advantage of simplicity. Hence, the micro and small enterprises owners should used
double entry accounting system and besides they need to move use different computer
system.
Even though micro and small enterprises, prepare financial statements that is income
statements and statement of cash flow and statement of owner equity, owners' should
also use balance sheet effectively.
It is better to that, micro and small enterprises expands adequate training on a record
keeping and follow up its own day to day activities. Otherwise, it is difficult to compete
from medium and large scale enterprises and also their transformation rate into the
medium size categories is low
.Finally, the researcher believed that the overall development cannot be achieved without
keeping record accounting system; hence, program should be developed in order to
trained owner’s micro and small enterprises.
REFFERENCES

Fan,(2003); importance of MSE and role of public support in promoting micro and small
enterprise development.

Gebrehiwot, A & Wolday. A, (2003); micro and small enterprise / finance in Ethiopia.

43
Jared Lewis,(2000); problems with double-entry bookkeeping systems /chrom.com.

Keogh,(2007); record keeping for small business-glowers, petercoyume and com.

Ministry of trade and industry, (1997); micro and small enterprise development strategy
Ethiopian; federal democratic republic of Ethiopia.

Mcmahon . R.G.P, (1998); putting micro and small enterprise.

Seogren. J,(200), small business record keeping, Hubartioer,Robert planks.

APPENDIX
Wolkite University
College of Business and Economics
Department of Accounting and Finance
Questionnaire To Managers or Owners
Dear respondent:- This questionnaire is prepared by graduating Accounting and Finance
student of wolkite University to gather relevant information for the study entitled
“Assessments of modern accounting and reporting on the growth of micro and small
enterprises; the case of wolkite town . The major purpose of the study is only for
academic purpose. Since, the success of the study is depends on your honest, timely, and
genuine response. You are required to give your valuable answers for all questions
sincerely. Therefore, I kindly request you to the following questions with integrity and
honesty.
Thank you in advance for your cooperation!!

44
Direction:
►You are not required to write your name.
►Mark “x” in space provided.
►Please choose the one or more than one which you think is the most appropriate
response to each question based on the condition, except personal information.

Part I: - Personal information

1. Sex: Male □ Female □
2. Age: Below 25 years□ 26-30 years □ Above 35 years□
3. Level of education: Certificate □ Diploma □ Degree □ above degree□
Part II: - main information
1. What is the type of business in which you are involved in? Service □ Trade □
2. What kind of accounting records that are applied in your business? Single-entry□
Double-entry□
3. Have you prepare financial statement in your business?
Yes □ No □
4. IF your answer for question no 3 above is Yes, what kinds of financial statements do
you prepared? Income statement □
Balance sheet□ Cash flow□ Owner equity □ all □
5. Do you get the necessary information periodically to run the business from the main
office?
Yes □ No□
6. If your answer for the question No.5 above is Yes, what is the nature of the
information you Get from the main office?
Performance related information □ Business operation □ Pattern of the business
growth□

45
 If others
……………………………………,.................................................................................
............
7. Do you believe that your business is profitable currently?
Yes □ No □

8. How do you measure the performance of your business?

Number of customers’ □ Amount of sales□ Comparing revenues and expenses□
If others
…………………………………………,.........................................................................
............
9. W ho prepares financial reporting for your business organization?
Permanent accountant □ Temporary accountant □ Owners □
10. For what extent prepare the financial statement in your business?
Monthly□ quarterly □ semi annually □ yearly □
11. Do you believe that you have obtained a benefit by using accounting records on the
growth of your business?
Yes □ No □
12. If your answer for the question No. 11 above is Yes, what kinds of benefit do you
obtained from using of accounting recording?
Helps knowing the profitability of the organization □
Enables to know the revenues and expenses □
To reporting the financial statements □
If others
,
…………………………………………………………………………………………
……
13. If your answer for question No 11 above is No, why?
Please specifies your response

46
 ..........................................................................................................................................
..........
14. How do your organization runs and evaluates its assets and liabilities?
Please specifies
…………………………………………………………………………………………
………

15. How do you know your revenues and expenses?

Please specifies your response,
………………………………………………………………………..............................
.......
16. How do you know your capitals? Please specifies your response,
…......................................................................................................................................
..........
17. Do you accept that the modern accounting and reporting always advantageous in your
business?
Yes □ No □
18. If your answer for question No 17 above is Yes, from what perspectives?
Cost minimization □
Time saving □
Easy to understand □
All of the above □
If
others……………………………………………………………………………………
……
19. If your answer for question No 17 above is No why?
Please specifies the reason
………………………………………….
……………………………………………………….
20. How to the acceptance of modern accounting and reporting in your business
activities?

47
 High □
Medium □
Law □
21. If your answer for question No 20 above is law why?
Please specifies your reason………………………………………………............
Than k you again for your cooperation!!

48