Defining Small Business Enterprises in Australia
Discuss About The Definitions Sources For Business Australia.
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)
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)
Accounting Records for Small Business Enterprises in Australia
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.
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)
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 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.
The Theory of Accounting for Small Business Enterprises
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)
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)
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 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)
Internal and External Stakeholders
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.
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.
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.
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.
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: https://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]
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