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The performance of the SME firm was viewed along the full proportions of financial, strategic and structural development. The socioeconomic function performed by SMEs is widely known in developing and emerging countries. But, in recent times, developing and developed nations have become more and more concerned about the level of financial literacy of the entrepreneur. This has emanated from peculiar to declining public and private to support systems and wide-ranging developments in the financial marketplace. The study was anchored on theDual –Process Theory. The researcher used both primary and secondary sources obtained by the use of a well-structured questionnaire. The population figure for the study was 500 respondents, comprising SMEs of different sectors.  The reason for choosing Kwara state is that it has a fairly large number of SMEs.

A series of tangible trends underpin the growing worldwide interest in financial literacy as a major life skill, thus, this study set to review the influence of financial literacy on the performance of the SMEs from Nigeria’s context.

It was concluded that financial knowledge and attitudes influences SMEs performance. It was recommended among others that there is a need for training programs on budgeting and planning, debt management, record keeping; saving and retirement plans in schools and other institutions that seek to promote financial literacy and practice.






1.1   Background of the Study

Financial literacy remains an interesting issue in both developed and developing economies, and has elicited much interest in the recent past with the rapid change in the finance landscape. Atkinson and Messy (2005) defined financial literacy as the combination of consumers’/investors’ understanding of financial products and concepts and their ability and confidence to appreciate financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being.

Financial literacy helps in empowering and educating investors so that they are knowledgeable about finance in a way that is relevant to their business and enables them to use this knowledge to evaluate products and make informed decisions. It is widely expected that greater financial knowledge would help overcome recent difficulties in advanced credit markets. Financial literacy prepares investors for tough financial times, through strategies that mitigate risk such as accumulating savings, diversifying assets, and purchasing insurance.

Financial literacy facilitates the decision making processes such as payment of bills on time, proper debt management which improves the credit worthiness of potential borrowers to support livelihoods, economic growth, sound financial systems, and poverty reduction. It also provides greater control of one’s financial future, more effective use of financial products and services, and reduced vulnerability to overzealous retailers or fraudulent schemes. Facing an educated lot, financial regulators are forced to improve the efficiency and quality of financial services. This is because financially literate investors create competitive pressures on financial institutions to offer more appropriately priced and transparent services, by comparing options, asking the right questions, and negotiating more effectively. Investors on their part are able to evaluate and compare financial products, such as bank accounts, saving products, credit and loan options, payment instruments, investments and insurance coverage, so as to make optimal decisions (Miller, Godfrey, Levesque and Stark, 2009).

Lack of business and management skills can magnify financial barriers for SMEs. Low levels of financial literacy can prevent SMEs from adequately assessing and understanding different financing options, and from navigating complex loan application procedures. Similarly, the fact that SMEs’ accounting and financial statements are often not transparent makes them risky borrowers and thus less attractive to lenders. Capacity building of SMEs in terms of preparing financial statements and business plans, as well as improving their financial literacy and management training, is shown to have positive impact on SME development. Furthermore, strengthening the horizontal linkages with other SMEs and vertical linkages with larger firms would improve SMEs’ market access according to Hogarth (2002).

This research; therefore, focuses on investigating the roles financial accounting literacy plays on small and medium scale business in Nigeria, types of accounting records being kept and maintained by SMEs, their completeness and the availability of accounting skills and knowledge to capture and process financial accounting literacy which can be used to measure productivity and performance in SMEs.


1.2   Statement of the Problem

Quite a number of studies have been conducted in developed countries and have shown significant relationship between financial accounting literacy and the growth and survival of small and medium scale enterprise. However, there are a lot of diverse perceptions about financial accounting literacy and these are caused by several factors. A major concern is the ignorance of owners of SMEs on the importance of book keeping and the proper understanding of the entity concept, thereby causing their business to suffer, due to lack of information (financial in nature) to aid in forecast against future eventuality and expansion. This has necessitated this study to find out the impact of financial accounting literacy on the growth and survival of small and medium scale enterprise in Kwara state, Nigeria. This study will help small and medium scale owners and folks interested in going into similar venture to understand the impact of financial accounting literacy on the growth and survival of SMEs.


1.3   Objectives of the Study

  • Main Objective

The main objective of this study will be to determine the importance of financial accounting literacy on the growth, development, survival, productivity and performance of SMEs in Kwara state.

  • Specific Objectives

The following are the specific objectives of the study:

  1. To examine the importance of financial accounting literacy in small-and medium scale enterprises in Kwara state.
  2. To determine the extent to which financial accounting literacy have been implemented and applied in small-and medium scale enterprises in Kwara state.
  3. To investigate the types of accounting records being kept and maintained by small-and medium scale enterprises in Kwara state.
  4. To ascertain the extent to which accounting information is being used as a financial tool for measuring financial performance of SMEs in Kwara state.
  5. To determine the impact of financial accounting literacy on the survival of small and medium scale enterprises in Kwara state.



The research question provides a framework and guidelines through which substantial knowledge of the research study can be understood.

The research question asked includes:

  1. What are the importance of financial accounting literacy in small-and medium scale enterprises?
  2. To what extent is financial accounting literacy implemented and applied in SMEs?
  3. What are the types of accounting records being kept and maintained by small-and medium scale enterprises?
  4. To what extent is the accounting information is being used as a financial tool for measuring financial performance of SMEs?
  5. What is the impact of financial accounting literacy on the survival of small and medium scale enterprises in Kwara state?



The hypotheses are stated in the null form for testing:


Ho1 -There is no significant relationship between financial accounting literacy and small scale enterprises performance.


Ho2 – financial accounting literacy do not increase the chances of the business operating and achieving success.


1.6   Scope of the Study

Conceptually the study hovers around the implicit role proper financial accounting literacy as small and medium scale business were concern in Nigeria. This study focuses on all SMEs in Kwara state. However, only three local government areas (Ilorin South, Ilorin North and Ilorin East local government areas) will be selected for this study using simple random sampling technique.



Though, this study was initiated to evaluate the importance of financial accounting literacy in small and medium scale business, no gain saying that, financial accounting literacy plays a positive role in the integrity of the decisions as well as the success of the small scale business.

The significance of this study was to create through documentation, an awareness of the importance of financial accounting literacy and basic accounting procedures to small-scale enterprises.

In addition it will be a source of knowledge to small-scale enterprises (SSE) on how to maintain proper accounting records and standards. The result will greatly facilitate the work of the Internal Revenue Services and the Value Added Tax officials in developing strategies to extend the tax net to cover such enterprises which form significant proportion of the Nigerian business community.

This study will also be of great significance to policy analysts since it will assist in analyzing the effectiveness and success of the work of the Small Scale Agency Board in Nigeria.

It will therefore equally be of immense help to the National Board for Small-Scale Industries, in evaluating the success of its activities with specific reference to the problem of poor accounting information initialization and basic accounting procedures in such industries. It would also assist the boards in determining or formulating their future plans.

It will also be of use to the student, researchers for further research study, the existing and prospective entrepreneur as well as any interested party. It will assist students in their knowledge build-up and appreciation of the practical accounting situation of the small scale business.


1.8   Limitations of the study

As with all studies, limitations exist and must be acknowledged. Moreover, the outcomes were based on the information solicited from the respondents and such might be subjected to human errors, omissions and possible mis-statements.

The limitations of the study are as given below:

  1. First of all time did not allow the researcher to glean information from all the Small scale business enterprise and all institutions under NBSSI
  2. The study could not show the whole scenario of the all small scale business in Nigeria.
  3. Because the sample is chosen from the one state Of Nigeria. That’s why the findings and analysis is varying slightly in organization to organization.
  4. The questionnaire was not understood by some respondent.
  5. Some respondent did not give enough concentration to understand the significant of analysis.
  6. The time was not enough to collect the data from the respondent.


1.9   Justification of the Study

Lusardi and Mitchell (2006) found that financial illiteracy is widespread and is particularly acute among specific groups of the population, such as women, the elderly, and those with low education. Agarwal, Driscoll, Gabaix and Laibson (2007) further show that financial mistakes are prevalent among the young and the elderly, who display the lowest level of financial knowledge and cognitive ability. Again a study by the OECD (2005) and the work by Lusardi and Mitchell (2007) which review the evidence on financial literacy across countries show that financial illiteracy is a common feature in European countries, Australia, and Japan. These findings were confirmed in the work of Christelis, Jappelli and Padula (2006), which used micro data from European countries to find that most respondents in Europe scored low on financial numeracy and literacy scales

This study will be very useful in that the previous studies carried out on financial literacy used Europe and other developed countries of the world as its case study, but this study will focus on Nigeria and most especially Kwara state to be specific as it will serve as a guide for SME owners in this part of the world to know the impact of financial accounting literacy on the growth and survival of their enterprise. This study will be very useful in that a lot of businesses in Kwara state today hit the rocks due to illiteracy on financial management matters.


1.10 Organization of the Study

This study will contain five chapters. Chapter one will serve as the introduction which will include background to the study, the statement of the problem, objectives of the study and research questions. Chapter two will deal with the literature review which will contain the conceptual framework, theoretical background and empirical evidence. The third chapter will focus on the report of research methodology, research design, method of data analysis, method of data collection, sampling technique and population of the study. Presentation, analysis and interpretation of data will be covered in chapter four, while chapter five which will be the last chapter will contain summary, conclusion and recommendation.



1.11 Definition of terms

Financial accounting

Financial accounting is a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.

Management accounting

Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.

Small and medium enterprises

Small and medium enterprise or small and medium-sized enterprise (SMEs, small and medium-sized businesmall scale business enterprise, SMBs and variations thereof) are companies whose personnel numbers fall below certain limits.

Financial statement

A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity.It also provide information regarding the position and performance of a business, such as its assets, liabilities, equity, income, expenses and cash flow.


Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.


In order for accounting information to be useful in decision making, it must be recorded consistently, meaning the same accounting treatment must be applied at all times to a given type of accounting data.


It is defined as any business undertaken, owned, managed and controlled by not more than two entrepreneurs, has no more than twenty employees, has no definite organizational structure (i.e all employees report to the owners) and has relatively small shares of its market.

Faithfull Representation

Faithfull representation requires that transactions and events should be accounted for in a manner that represents their true economic substance rather than the mere legal form. This concept is known as Substance Over Form.

Accountant: An accountant is any person who possess a professional license to practice accountancy from a recognized professional body and has legal capacity and authority to carryout the duties of accountants in taxation and audit practice