Literature Review: Accounting Records and Small Business Performance

This report presents a comprehensive literature review focused on the significance of accounting records for small businesses in Australia. It begins with an introduction that defines small business enterprises and outlines the common accounting records relevant to them, including income statements, balance sheets, and cash flow statements, as well as financial instruments. The report then summarizes the theory and progression of accounting, emphasizing its importance for all businesses regardless of size, its role in satisfying stakeholders, and the reliance on historical financial information. The core of the report is a review of four articles: Amoako's study on accounting practices in Ghanaian SMEs, Agbemava et al.'s assessment of financial statement preparation on SME growth, Ezejiofor et al.'s work on the relevance of accounting records in Nigerian small businesses, and Ahmad's thesis on management accounting practices in Malaysian SMEs. Each article is summarized, and common and different themes are identified, followed by the managerial implications of the findings. The report concludes with a discussion of study limitations and suggestions for further research, particularly for small businesses in Australia. The report underscores the crucial role of accounting records in decision-making, business growth, and stakeholder satisfaction, highlighting the need for sound accounting practices.

Applied Business Research
Word Count- 1696
1 | P a g e

Contents
Introduction.................................................................................................................................................3
Summary of the theory and progression in the field...................................................................................3
Literature Review........................................................................................................................................4
1st Literature- Accounting Practices of SMEs: A Case Study of Kumasi Metropolis in Ghana by Gilbert
Kwabena Amoako....................................................................................................................................4
2nd Literature: Assessing the Effects of Sound Financial Statement Preparation on the Growth of Small
and Medium-Scale Enterprises by Edinam Agbemava et al.....................................................................4
3rd Literature: The Relevance of Accounting Records in Small Scale Business: The Nigerian Experience
by Raymond A. Ezejiofor, Ezenyirimba Emmanuel, Moses C. Olise.........................................................5
4ht Literature: THE USE OF MANAGEMENT ACCOUNTING PRACTICES IN MALAYSIAN SMES by Kamilah
Ahmad.....................................................................................................................................................5
Common Themes of these articles..............................................................................................................6
Different themes of these articles...............................................................................................................6
Managerial implication of the four articles.................................................................................................6
Study limitation with further scope of research..........................................................................................6
References:..................................................................................................................................................7
2 | P a g e

Introduction
This article will develop literature review for small business enterprises in Australia in respect of
its accounting records with their relevance for the operation of the business to meet the
expectation of both internal and external stakeholders. It is also to be considered how accounting
records influence performance of this type of business. (Saccasan, 2017)
In Australia, small business enterprises are defined as per three categories- legal status of
business, annual business turnover and number of employees. The Australian Bureau of Statistics
has specified the legal status of business as ownership, partnership, company or trust. The annual
turnover of business enterprises must be less than $ 2 million. The employee strength should be
less than, equals to or slightly more than 20 heads. (Gilfillan, 2015)
The accounting records relevant to the small business enterprise in Australia are common as per
the global trend. Normally accounting records are consisting of income statement, consolidated
financial position, cash flow and the accounting policy followed by the business as per its
requirement. As accounting records are constructed on the financial instruments, they are to be
defined also. Financial instruments are invoices, GRN, receipts and relevant journal entries.
(Nikolakopulos, 2011)
Summary of the theory and progression in the field
The theory of accounting has its role from the start of business. It is relevant irrespective of
business size. Basic theory of accounting is to derive the income from the business along with
consolidated financial position of the business. These outcomes can be revealed from different
accounting records like income statement, balance sheet and cash flow. Accounting records are
mainly generated from different financial information namely invoices, receipts GRN, etc.
(Tools, 2017)
Earlier accounting was prevalent in raw form. As the time goes, modification is found with
several additions of records. Business is mainly connected with different stakeholders. Hence,
the satisfaction of those stakeholders is the main objective of business. Accounting records are
based on historical financial information depicting financial position of any business. These
accounting records project to the stakeholders the financial health of the organization. These
records also highlight the profitability of the business for a specific financial time. (Nawaz,
2012)
For small business enterprises of Australia, the internal stakeholders are employees and owners,
while external stakeholders are creditors, debtors and government. The purpose of sound
accounting records is to satisfy their queries in logical way. Hence, the requirement of sound
accounting records following proper accounting policy is necessary for transparent presentation
of financial transactions of the organization. (T.Schaper, 2014)
3 | P a g e

For the purpose of literature review of accounting records, type of accounting information and its
relevance towards performance of business organization will be delivered with the help of four
articles.
Literature Review
1st Literature- Accounting Practices of SMEs: A Case Study of Kumasi
Metropolis in Ghana by Gilbert Kwabena Amoako
This literature was published on 20th November, 2013 to highlight the referred subjects on which
this article is discussed. This literature has highlighted the importance of proper accounting
records keeping with the extent to which such records should be kept and the type of accounting
system to be maintained by small business enterprises. This study is made on the pillars of
questionnaire and interviews to ensure qualitative nature of this study. The argument made by
Olson et al. (2004) depicted that the users of accounting information are increasing who are more
interested about the perspective of process of profit planning. This information can help the
stakeholders to initiate their decisions regarding the said organization (Copeland & Dascher,
1978). The role of accounting records is more prominent in the process of decision making
through proper analysis. For this purpose, proper maintenance of accounting records is
necessary. This process can flow necessary information in effective way to the stakeholders. The
accounting records of small business enterprises project basic accounting information like
purchase, sales, determination of break-even point along with different varieties of other
accounting information. Proper maintenance of accounting records can ensure smooth running of
business in SMEs. Accounting records are the mirror to project the growth and profitability of
any business; hence, proper evaluation of business can only be done through these records.
Prudence in accounting records raises the ethical value of the business, which can yield good
image amongst the stakeholders. As per Lybaert (1998), quality of accounting records exercised
within the organization has direct relationship with the performance of the entity and subsequent
survival. (Amoako, 2013)
2nd Literature: Assessing the Effects of Sound Financial Statement Preparation
on the Growth of Small and Medium-Scale Enterprises by Edinam Agbemava et
al.
As per this literature published in March, 2016, the main function of accounting records is to
ensure communication of business transaction through different financial statement made from
financial information of the business. These records are elementary to provide information to the
management and different external stakeholders of the business. As per Holmes and Nicholls
(1988), the data turns to financial information of any business when it projects quantitative
measurement with the satisfaction of verifiability, relevance and prudent. This information can
be used for assessment for subsequent judgment when the quantification process proves its worth
as internal features of accounting information. This theory depicts that these information is
4 | P a g e

considered as a resource, the collection of which processed and transmitted by incurring cost.
The proportion of cost and volume of information is directly connected with the increase of
volume incurs respective cost. This factor is crucial for small business enterprises for
maintenance of sound accounting information system.
As per observation of Mbroh and Attom (2012), business enterprise is interested to determine
profitability. For this purpose, they have to adopt proper accounting policy with relevant
standards to confirm the consistency of such measurement practices. The role of accounting
records is reckoned as ex-factor of business performance. As per Abdul-Rahamon and Adejare
(2014), there is good relationship between the business growths of the enterprise by keeping
proper accounting records. Accounting records can enable the management to understand the
position of business with its growing trend. Hence, the same is necessary for proper tracking of
business movement. (Edinam Agbemava, 2016)
3rd Literature: The Relevance of Accounting Records in Small Scale Business:
The Nigerian Experience by Raymond A. Ezejiofor, Ezenyirimba Emmanuel,
Moses C. Olise
The above literature is published on 8th April, 2017 and had highlighted the concept of theoretical
framework between the keeping of accounting records and performance of the organization. As
per Tanwongsval and Pinvanichkul (2008), one of main the reasons for preparation of accounting
records by SMEs is to derive profitability for a particular period with the secondary objective of
making tax return. As per Cooley and Edwards (1983), the proprietors of SMEs consider the
objective of profit maximization as primary feature. As per Holmes and Nicholls (1998), the
determining factors for maintenance of accounting records for small enterprises are age, size and
nature of business. It is also found that most enterprises are engaging public accountants for
keeping their accounting records. Ismail and King (2007) had emphasized that following of
sound accounting information systems depends upon the knowledge skills of owners in the field
of accounting. It is inferred that normally small business entities deploy professional firms for
preparation of their accounting records with other accounting needs. As per Hussein (1983),
basic feature of sound accounting system can be derived by the value addition it makes for
internal and external stakeholders to take right decision. (Raymond A. Ezejiofor, 2014)
4ht Literature: THE USE OF MANAGEMENT ACCOUNTING PRACTICES IN
MALAYSIAN SMES by Kamilah Ahmad
This thesis of 2012 had emphasized on the importance of Management Accounting Practices
(MAP) in case of small business enterprises in Malaysia. As per Holmes and Nicholls (1989),
MAP is directly associated with the success of any enterprises. Hence, the same has immense
impact on the performance of such enterprises. Recent trend of SMEs reiterates that the SMEs
and its entrepreneurs understand the effect MAP for development Management Control over the
organization. The same can be availed through proper application of management accounting. It
is observed that absence of professional accounting support for SMEs forces the management to
5 | P a g e

take hasty decisions. Hence, the need of MAP is proven essential for the small business
enterprises to prove their performance in aspects of growth, profitability and satisfaction of
stakeholders. (Ahmad, 2012)
Common Themes of these articles
The research subject is to derive the role of accounting records for small business entities in
Australia. For this purpose literature review of above four articles had been done. Common
themes of these articles reveal that the role of accounting records cannot be denied for decision
making by stakeholders. Proper accounting record keeping helps the enterprise to grow with
information provided with subsequent analysis. Absence of proper accounting records leads to
not assessing the performance of the organization and it may subsequently leads to failure.
Different themes of these articles
The first article had emphasized on the importance of keeping proper accounting records for the
stakeholders. It has reiterated that keeping of proper accounting record can make all stakeholders
satisfied with their decision making provision. Second article had emphasized on the function of
different financial information as tool of communication of business transaction. Third article
had put light on the theoretical framework of keeping accounting records with relevance to
business performance. Fourth article had highlighted the role of management accounting
practices to support small business enterprises for their coveted growth.
Managerial implication of the four articles
Management can decide about keeping accounting records for the business irrespective of its
size. Any business is evolved with the interests of internal and external stakeholders. It is found
that stakeholders have to take decisions in different time. For this purpose accounting records are
most helpful tool.
Study limitation with further scope of research
The subject is well reckoned by the critiques. The articles also emphasized that. But the
limitations of studies showed in the domains of its application. Proper guideline is also not
properly provided to understand the extent of effectiveness it can offer to the stakeholders.
Hence next research scope is to be highlighted to ensure proper guidance to the follower e.g.,
Small business enterprises of Australia who are the target audience of this literature review.
6 | P a g e

References:
Ahmad, K., 2012. THE USE OF MANAGEMENT ACCOUNTING PRACTICES IN MALAYSIAN SMES. Thesis for
degree Doctor of Philosophy in Accountancy. University of Exeter.
Amoako, G.K., 2013. Accounting Practices of SMEs: A Case Study of Kumasi Metropolis in Ghana.
International Journal of Business and Management, 8(24), p.74.
Edinam Agbemava, G.A.S.T.C.A.A.K.B.I.K.N..M.B.K., 2016. Assessing the Effects of Sound Financial
Statement Preparation on the Growth of Small and Medium-Scale Enterprises. The International Journal
Of Business & Management, 4(3), p.106.
Gilfillan, G., 2015. Definitions and data sources for small business in Australia: a quick guide. [Online]
Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/rp/rp1516/Quick_Guides/Data [Accessed 5 May 2018].
Nawaz, R., 2012. The Impact of Financial Information on Organizing and Managing a Small Business.
Dissertation. Auckland: Auckland University of Technology.
Nikolakopulos, A., 2011. Types of Accounting Records. [Online] Available at:
http://smallbusiness.chron.com/types-accounting-records-35604.html [Accessed 05 May 2018].
Raymond A. Ezejiofor, E.E.M.C.O., 2014. The Relevance of Accounting Records in Small Scale Business:
The Nigerian Experience. International Journal of Academic Research in Business and Social Sciences,
4(12).
Saccasan, P., 2017. CHALLENGES AND STRENGTHS FOR AUSTRALIAN SMES. [Online] Available at:
https://www.businessfranchiseaustralia.com.au/expert-advice/challenges-and-strengths-australian-
smes [Accessed 05 May 2018].
T.Schaper, M., 2014. A brief history of small business in Australia, 1970-2010. Literature Review. Perth:
Curtin Business School, Curtin University, Perth, Australia.
Tools, A., 2017. Financial Statements. [Online] Available at:
https://www.accountingtools.com/articles/2017/5/10/financial-statements [Accessed 05 May 2018].
7 | P a g e