Sole proprietors’ perception towards accounting records

DEPARTMENT OF ACCOUNTING Faculty of Business Administration and Management

Patuakhali Science and Technology University Dumki, Patuakhali – 8602.

November 26, 2009 Md. Zakir Hosen Assistant Professor Department of Accounting and Information System Faculty of Business Administration and Management Patuakhali Science and Technology University

Subject: Transmittal of the report on “Sole proprietors’ perception towards accounting records” Dear Sir, It’s been a pleasure for us to submit here with our dissertation, which has been prepared under the smart and dynamic leadership of a personality like you. This report is a very important part for our study. If we analyze the financial statement of a sole proprietorship we must gather new terminology and some new implementation of Accounting. In completing the report we have tried our level best in imparting every available details of the organization avoiding unnecessary amplification of the report. With best regards, Sincerely Yours; (Md. Shahinuzzaman) Leader (Group- Vigilance) Student of Business Administration and Management

Acknowledgement First we want to give thanks of almighty, With profound regard we gratefully acknowledge our respected teacher Md. Zakir Hosen, Assistant Professor, Department of Accounting and Information System, Faculty of Business Administration and Management, Patuakhali Science and Technology University for his generous help and day to day suggestion during the survey. We like to give thanks especially to our friends & many individuals, for their enthusiastic encouragements and helps during the preparation of this report.

We also available the opportunity to express our thanks and cordial esteem to the owners who are very cordially give answer us.

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Sl. No. Subject Page no.

1. Executive Summary 1

2. Executive Summary 2

3. Objective of the report 3

4. The limitation of the study 4

5. Methodology 5

6. Accounting process 6

7. Questionnaires 7

8. Section 1 information about entrepreneur 8

9. Section; 2 information about enterprise 9

10. Section; 3.1/3.2 accounting system 10-12

11. Section; 3.3 sales record 13-14

12. Section; 3.4 Expense record 15

13. Section; 3.5 Presentation of financial statement 16

14. Findings of the Report 17

15. Recommendations 18

16. Conclusion 19

17. References 20

Reports on

Sole proprietors perception towards accounting records

Date of Submitted 10 may, 2009

Patuakhali Science and Technology University,Dumki-8602

Submitted to:

Md. Zakir Hosen

Assistant Professor, Department of Accounting & Information System

Patuakhali Science and Technology University

Dumki, Patuakhali.

Submitted by:

Group Leader: Md. Shahinuzzaman

(Vigilance)

(Level-I, Semester-I)

BBA Program

Faculty of B.A.M

Patuakhali Science and Technology University

1

Executive Summary Accounting is the lifeblood of an organization. No organization can be imagined without it. It is something that affects people in their personal life, just as much as it affects large organization and also small organization. We all use accounting ideas when we plan what are we going to do with our money and we have to plan how much of it we will spend and how much we will save. All these are possible by accounting. It is a part and parcel tool of an organization. It helps the management about the financial condition and to provide necessary information. No organization can exit today’s comparative business world without accounting. In case of sole proprietorship business accounting is also used. The business organization in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship from of business organization. Here in this report we have emphasized on the accounting practice of sole proprietorship. This report highlights the different steps of accounting practice of sole proprietorship. Systematic way that company uses and this report gives us the chance to compare our academic knowledge with practical field. As a result we have selected some sole proprietorship business, which helps us to acquire our practical knowledge on communication systems in our practical life.

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Introduction A sole proprietorship is a one-person business that is not registered with the state as a corporation or a limited liability company (LLC).Sole proprietorships are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are a freelance photographer or writer, a craftsperson who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn't on an employer's regular payroll, you are automatically a sole proprietor. However, even though a sole proprietorship is the simplest of business structures, you shouldn't fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts. A sole proprietor may do business with a trade name other than his or her legal name. In some jurisdictions, the sole proprietor is required to register the trade name or "Doing Business As" with a government agency. This also allows the proprietor to open a business account with banking institutions

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Objective of the report: As business executive of future, we should need to gather knowledge on Macroeconomics. We should not concern our lesson only in classroom but to implement it in practically that will help us in our future life. A clear objective helps to prepare a well-decorated term paper in which others take the right type of decision. Similarly our honorable course teacher Md. Jakir Hosen gives us an assignment. The main purpose of the report is to know the recording process or accounting system of sole-proprietorship business surrounding Borishal city. Although, it is seems to be very difficult to get our needed information from these sole-proprietorship businessman of Borishal, because most of the sole-proprietorship do keep accounting information or keep business record as we need however we try out best to get our essential information to fill the objective of the report. And to reach or to achieve desired goal; the main objective of the repot are following

a) To know about sole-proprietorship business. b) To know about the entrepreneur. c) To know about accounting system or recording process of sole-proprietorship business d) To know the present condition of sole-proprietorship business surrounding Borisal. e) To enrich knowledge about its accounting system.

Among all adjective of this report the main object is to know the accounting record of sole-proprietorship business and tried our best to touch the every objective and to reach at our desired point.

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The limitation of the study No work on the world is complete without limitations. The study we made hane some limitations. In spite of having some limitation we all have tried our best to fulfill our report. In preparing the report the limitation we found are as follows—

i) The scope of surveying shop was limited. ii) In some cases they are not willing enough to give information. iii) Exact information may not be got from the survey. iv) There existed shortage of time because of the pressure of examination. v) They try to maintain their secrecy about their business. vi) As we made the survey informally and without making the businessman pre inform.

So they had time consideration. vii) Their given information did not match our questions properly.

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Methodology It is very much relevant that a partial job is done by following proper methods. As we tried to make a rational report we have followed the proper methods to perform our job. Every study is done on the basis of primary data and secondary data. Our presented report is related with primary data because for making this report we have familiar with field survey. Basically, we have tried to make this report by following the information we have collected through field survey.

Some specific steps have been taken by us to prepare this report. At first we have planned about the overall study. We were given ten different schools to observe the present situation .We have collected data from all the given institutes. Then we have analyzed these data by group working. After that we have tried to make a report on present situation of those organizations. Here the process is given below:

Figure: The reporting process

Planning

Analyzing Data Reporting

Collecting Data

Questioning

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Accounting process: The accounting steps that recur each accounting period in the life of a business and that begin with recording of transactions and produced through posting the recorded amounts, preparing a trial balance, preparing a work sheet, preparing financial statements, preparing and posting adjusting and closing entries, and preparing a post closing trial balance is known as accounting cycle. The accounting cycle can be shown as follows:

Figure: accounting process

Identification

Journalization

Posting to ledger

Worksheet*

Financial

Preparation of trial Closing entries

Adjusting entries

Reversing entries*

Post closing trial

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Questionnaires:

Questionnaires are very useful part for making a report. Single set of questionnaire was used to collect information for study. Every attempts was made to make the questionnaire all-inclusive I e, all possible answers were given in the questionnaire.

In section number 1at this section provides information about proprietors. At this section mention different types of question about only proprietors e.g., name of the proprietors, educational level of proprietors, background of study, origin of the organization, tax identification number, value added tax and also asked a question e.g. Do you think accounting record is important for your business? All the proprietors answer promptly yes.

In section 2 at this section provide information about enterprise. At this section asked different types of questions to proprietors about their enterprise such as nature of business, trade license, sources of capital, operating year of the business, and last on is number of employees.

In section 3 is related to accounting system for their business. At 3.1asked different types of general questions which is related for their business such as have any books of account, how they keep records, in which process maintain accounting, do their organization have any written accounting policies and procedures, have any proper documents for support transaction, and which book they maintain.

At stage 3.2 asked questions for their inventory record such as do they keep any purchase record, do they maintain inventory record, how do they order to purchase inventory, and how do they prevent theft of inventory.

At stage 3.3 asked question about their sales record such as, do they keep any sales record, how do they prevent theft of cash.

At stage 3.4 asked different types of questions about their expense record such as, do they maintain expense record, do they maintain depreciation charge on assets, are they salaries expense recorded, when they takes anything from the business for personal use, then is it recorded separately, are they recorded transportation expense daily, are they recorded entertainment expense daily.

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Section 1 information about entrepreneur

Figure: survey report about entrepreneur

All the above information is collected by our group members who provide only proprietors.

While collecting data the owner say that they are very much conscious about their business. Most of them marginal educated and are commerce background. So when we asked them do you think accounting is very much important for your business? All the proprietors answers without delay that accounting process maintain is very essential part for their business. Soles proprietors owners maintain their accounting process informally. Although they record all the accounting process informally but it is related to the accounting process.

Name of the businessman

Name of the business

Educational qualification

Background of education

Origin of business

Importance of accounting

tax

Sukumar saha MS monindra lal saha store

B.Com Commerce Self started

Yes yes

Mohebullah(Sobuj) Murali Store

Others Madrasa Self started

Yes No

Swapan Saha Trenath Vandar

SSC Commerce Self started

Yes Yes

Somvonath Saha Joykali Vandar

HSC science Inherited Yes Yes

Sisir Bonik Ms. Kartik Bonik

SSC Science Inherited Yes Yes

Moslem Howlader Sahin flour mill

Below SSC Arts Inherited Yes Yes

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Section; 2 information about enterprise

Name of the owner

Name of the organization

Nature Trade license

capital Running year

employee

Suvonath Saha

Joy Kale Vander

Merchandising yes Both self and lone

Less 10 3-4

Sukumar Saha

Ms. Monindra Lal Saha store


50year

4-5

Mobullah( Sobuj)

Murali store Merchandising yes Both self and lone

25yerar 4-5

Sopon Saha Trenath Vander


20year 1-2

Shisir Bonik

Ms. Cartik Bonik

Merchandising yes Self 20year 1-2

Moslem Howladar

Sahin flour mill

Merchandising No others Less 3 year others

Figure: survey information about enterprise

A sole-proprietorship business or enterprise have some separate models or activities those are separate than other business. Our mentioned nine sole-proprietorship organization shows that each has their separate accounting process. As for example we say that some doesn’t have trade silence and the capital formation capacity are vary from sole-proprietorship to sole-proprietorship. Maximum organization collects capital as their chosen way and gets enough. The organization running year is different form sole-proprietorship to sole-proprietorship. Even the number of employee in the organization is varied and after all the whole operating system is varying organization to organization.

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Section; 3.1/3.2 accounting system

Accounting system is a process by which one organization recorded his all transactional report and prepared organizational report. Every organizational activities and its success depend on proper recording system that means proper accounting system. And one organization recorded its financial terms into two types of recording way.

a) General record. b) Inventory record

And if we want to know about an organization properly or specifically then we have to know accounting system of that organization. For these reason when we visited completed our survey on sole proprietorship business, we asked about the organizational accounting system. Basically we gave extra priority on its recording process. Do they keep any record or not? Types of recording process, do they keep any purchase or sales record; does it/ do they follow proper recording procedure or not, do they keep voucher invoice, GL, or different types of inventory etc. these every information are differ from one organizational to another that shown in bellow as a box to imagine about those organization at a glance.

Name Of the Business

Name of the Enterprise

Books for Accounting

Records System

Describing Accounting

Written Policy

Proper Document

Voucher, Invoices and Time Sheets

Shisir Bank No Informal Manual No No yes Shukumar Shaha yes Informal Manual No No yes Shomvonath Shaha

yes Informal Manual No No No

Swapon Shaha yes Formal Manual yes No yes Su-Shanto Shaha yes Informal Manual No No No Moslem Houlader yes Informal Manual No No yes Mohibulla yes Informal Manual No yes No

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GL Establishment cost

Cash receive journal

A/R journal

A/P journal

Sales journal

Purchase journal

Shisir Bank No yes No yes No No No

Shukumar Shaha

No No No yes yes yes yes

Shomvonath Shaha

No No No No No No No

Swapon Shaha

yes No yes yes yes No yes

Su-Shanto Shaha

No yes yes yes yes yes yes

Moslem Houlader

No yes yes yes yes yes yes

Mohibulla



Purchase Record

Inventory Record Purchase Inventory

Shisir Bank yes yes On the Basis of Record Keeping

Shukumar Shaha yes yes On the Basis Counting

Shomvonath Shaha No No On the Basis Counting

Swapon Shaha yes yes On the Basis of Record Keeping

Su-Shanto Shaha yes yes On the Basis Counting

Moslem Houlader yes yes On the Basis Counting

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And, at the ending period of this section, we want to mention here that most of the organization has not proper or formal procedure to prevent theft or inventory. But they mention some system which they take to prevent theft of inventory as following.

a) By proper viewing the business b) By taking extra care. c) By depending on the basis inventory record. d) By recording transaction e) And depend on personal imagination.

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Section; 3.3 sales record

Figure: survey report about sales record

We all know that the main purpose of sole proprietorship businessman is to achieve profit. If anyone want to achieve profit he must sells his product. If he wants to find out his profit properly he must record the sale of products.

For sole proprietorship business; the question no 3.3 or analysis of sales record, it implies that in Barisal’s most of the sole proprietorship business does not maintain sales record and some of the sole proprietorship business maintain sales record. The organization which does not maintain sales record, it does not take any formalities to prevent theft of cash. When we survey these business organizations we saw that most of the business owners handle their cash box. They were ensured us that although they are maintain the cash by him so there is no way of theft.

Name of the Organizations

Name of the Proprietors

Maintain Sales Record?

Way of prevent theft of cash

Way of determine sales revenue (if does not keep sales record)

01. Sahin Flower Mill Moslem Howlader Yes By closing daily transaction

…………………….. ……………………..

02. M/S Monindra Lal Saha Stores

Sukumur Saha Yes He keeps daily sales record in his sales book. And also identify the dailies cash with his sales book.

…………………….. ……………………..

03. Trenath Vander Swapon Saha No Do not take any formalities

On the basis of idea

04. Joy Kale Vander Somvo Nath Shaha No Owner maintain the cash

On the basis of dailies cash.

05. M/S Kartik Bonik Shisir Bonik Yes No formal step …………………….. ……………………..

06.Mohebullah Sobuj Murali Stores Yes He keeps his daily sales record and maintain cash by himself

…………………….. ……………………..

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On the other hand, the organization which maintains sales record, it must follow some rules that prevent the cash theft. These are discuss below—

a. By closing daily transaction

b. keeps daily sales record in sales book and also identifies the dailies cash with sales book.

. c. Maintaining the cash by own self.

All the above discussion we can analyze that the organization which maintain the daily sales record in his daily sales book get or achieve more profit than the another

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Section; 3.4 Expense record

Figure: survey report about expense record

For recommendation, the questionnaire was given to top grocery shop. Our main target was those who had enough knowledge in maintaining accounting system in his business. As the field of study was limited within the Barisal city, it was decided that the information would be collected by direct interviews. Nine interviewers having sufficient knowledge about these topics through their course AIS were appointed to collect the information. The survey was conducted at April 30, 2009. Question was hand delivered to the owner or manager of the organization. All the day the key terms were made clarified to the respondents. Interviewers were instructed to go on the following day. Further clarification was made where needed and finally questionnaire was collected. The data were analyzed by using the mean, median, mode and standard deviation.

Name of the owner


Maintain expense record

Depreciation charge on assets periodically

Salary expense record

Personal expense record separately

Transportation expense record daily

Entertainment cost record daily

Suvonath Saha

Joy Kale Vander

Yes Don’t have any depreciation charge system on assets

Yes Yes Yes No

Sukumar Saha


Yes No Yes No No No

Mobullah( Sobuj)

Murali store Yes No Yes No No No

Sopon Saha

Trenath Vander

Yes No Yes No Yes No

Shisir Bonik

Ms. Cartik Bonik

Yes No Yes No No No

Moslem Howladar

Sahin flour mill

Yes Yes Yes Yes Yes Yes

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Section; 3.5 Presentation of financial statement

Name of the owner


prepare often Comply with bank

Owners equity

Balance sheet

Income statement

Suvonath Saha

Joy Kale Vander

yes yearly not yes no yes

Sukumar Saha


yes yearly not yes yes yes

Mobullah( Sobuj)

Murali store yes yearly not yes yes yes

Sopon Saha

Trenath Vander

no yearly no no no

Figure: survey information about financial statement

Every sole-proprietorship organization must need to maintain financial statement, for not only his own record but also to maintain his accounting cycle and show the organization current and previous economic position. We see the organization is frequently unaware about keeping financial statement and they are unaware about the current financial position. For receiving loan form bank and other financial organization, financial statement is needed for every sole-proprietorship organization. On the other hand we observed that every sole-proprietorship keep record as their own way by this they may able to keep his financial record but this uncompleted record are unable to make financial statement and owners equity statement and income statement

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Findings of the Report:

Every study which is conducted has some findings which are very interesting implications of the study. So, our present study conducted on “Sole proprietors towards accounting records” has also some interesting implications which are as follows:

Sole proprietor maintains manual and old system for reporting financial statements to interested parties.

Sole proprietor follows no rules for preparing income statement. They follow no method to record to charges depreciation for their plant assets. Sole proprietor four statements, (about)

1. Profit and Loss Account. 2. Balance Sheet. 3. Statement of Changes in Equity. 4. Balance Sheet

In the year of 2007 the Sole proprietor has been able to earn enough profit without or very little accounting process.

The Sole proprietor has been able to emerge business largely in maintaining this recording system but they understand the lacking of accounting system.

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Recommendations:

After completing the report on “Sole proprietors towards accounting record” we are in position to recommend the following implications-

They should not use accounting methods for preparing their financial statement and other documents. Most of them are unaware about the accounting process for measuring financial position.

The accounting system namely income statement, balance sheet, owners equity statement, are much unknown to them but subconsciously they maintain this.

Most of the businessman is continuing business more than twenty years, for this accounting is needed for the businessman but that is unknown to them.

The necessarily omits many items that are of financial value to the businesses but cannot be recorded objectively. So, should give proper concern to make financial reports that the report should include all necessary information.

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Conclusion Sole proprietor business maintains very weak and uncompleted financial report for maintaining accounting process. Also keep his financial record very subconsciously. By watching their financial statement it is very tough to determine something but they can easily keep and understand all the records. We have operated our study on their organization to know how they maintain their accounting record and we say that our motto is completely success as we hope. We prepare our report as a man can get enough idea about the sole proprietorship organization by reading our report.

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References:

Information given by the sole proprietor’s owner in Barisal’s glossary sops. Term paper format given our course teacher ZAKIR HOSEN sir. Jerry J. Weygandt, Donald E. Kieso, & Paul D. Cimmel, Accounting Principles, John

Wiley & Sons, Inc, 7th Edition. Jerry J. Weygandt, Donald E. Kieso, & Paul D. Cimmel, Intermediate Accounting, John

Wiley & Sons, Inc, 11th Edition. Roger H. B\Hermanson, James Don Edwards, & Michale W. Maher, Accounting

Principles, Irwin, 5th Edition.