Essay

JOURNAL OF INFORMATION SYSTEMS American Accounting Association Vol. 33, No. 2 DOI: 10.2308/isys-51982 Summer 2019 pp. 63–75

Accounting Information Technology in Small Businesses: An Inquiry

David R. Fordham Carol W. Hamilton

James Madison University

ABSTRACT: This inquiry addresses the prevalence of computerized accounting information technology in the U.S. small business environment. Academic and practitioner literature gives the impression that small business has

widely adopted computerized accounting systems. Our study looked at a broad range of small businesses and found

that a large majority are still using accounting practices that do not constitute true integrated computerized

accounting systems. Further, of those which are using integrated software, over 90% are using industry-specific

software rather than the general-purpose small-business accounting packages which dominate the literature. These

results suggest that: (1) penetration of integrated accounting software is not as prevalent in small business as the

literature might imply, (2) there is opportunity for research into why business owners do not utilize integrated

software, (3) there may be opportunity to help entrepreneurs improve their efficiency and effectiveness, and (4)

entrepreneurs using integrating software find benefits beyond simple accounting functions.

Keywords: AIS; accounting systems; accounting information systems; small businesses; small business accounting; Quickbooks; accounting software; internal controls.

I. INTRODUCTION

I n searching the practitioner and the academic literature published since the introduction of the personal computer, one may

conclude that practically all small businesses 1

today use computer-based accounting information systems. There are no

published articles since 1991 addressing small business accounting which do not assume the pervasiveness of

computerized accounting software. Given the low prices and impressive features of modern accounting packages and the extent

to which computers have permeated modern society, this is certainly a logical assumption.

The initial goal of this study was to identify the most common commercial accounting software package(s) used by current

U.S. small businesses. Based on L. Bressler and M. Bressler’s (2003, 2006 ) studies, the academic literature appears to accept

Intuit’s Quickbooks as the dominant accounting tool. To examine this, we attempted to survey small businesses on their

adoption choice of accounting software packages. The unusably-small response rates led the researchers to consult

entrepreneurship professionals and small business consultants, who recommended personal visits and face-to-face

conversations with business owners rather than impersonal surveys. Thus, the research consisted of a multi-year individual

interview data collection effort.

Rather than concentrate on the reasons, rationale, and processes used for software adoption as had other studies, this

inquiry simply looked at the software brand or product currently in use. This limitation was deliberate, as time and funding

restrictions limited the amount of data that could be gathered.

The results show that a majority of small businesses in the U.S. are apparently not using true integrated accounting software.

Many are using pencil-and-paper processes, while others are using word-processing templates, Excel or other spreadsheets, or some

The authors gratefully acknowledge the valuable assistance and contributions to this project provided by Albert Mitchell, Paul Bierly III, Tammy Bliss, Chris Simon, Adam Flint, Natalie Elder, Yuji Wang, Paul Hong, Cathryn Fordham, Jim Kelly, Richard McEwan, anonymous reviewers, JIS editors, and the 1,625 small business owners who graciously participated in the study. This research was supported by grants from the James Madison University Center for Entrepreneurship, PBGH LLC (now PBMares LLC), and Cherry Bekaert.

Editor’s note: Accepted by Diane Janvrin.

Submitted: May 2015 Accepted: December 2017

Published Online: December 2017

1 For the purposes of this study, small businesses are defined as those having 50 or fewer employees.

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other computer tools which do not qualify as integrated software. Of those using integrated software, most are using industry-

specific software packages based around business operations rather than a general-purpose accounting package like Quickbooks.

Understanding accounting system practices of small business is of interest to CPA firms with small business clientele, as

well as small business advisors and bookkeeping services. It might also assist software vendors serving the small business

market, both for marketing and software design purposes. It would also be useful to prospective entrepreneurs and small

business owners preparing to purchase an initial or general-purpose accounting package or upgrade from a package no longer

supported. It would also be of interest to accounting systems academics, giving information to aid in the development of new

systems design for ERP systems aimed at small business, as well as the construction of further studies. It would also be of

interest to accounting educators desiring to give students exposure to hands-on experience in real-world accounting practice.

II. BACKGROUND AND PRIOR RESEARCH

In the 1980s, the introduction of the IBM PC changed society’s perception of computers, and with this perception came

opportunity for a change in recordkeeping for small businesses. With its low cost (relative to mainframe computers of the day),

and end-user computing paradigm, the PC provided a unique opportunity for small business accounting. Easy-to-learn intuitive

tools (such as spreadsheets) allowed automation of calculations, extensions, and footings, providing higher speed and accuracy

than traditional manually-operated hardware such as calculators, comptometers, and cash registers. Relational databases

brought about the replacement of paper journals and ledgers.

Intuit’s Quicken check register software was introduced in 1983. Before the end of the decade BusinessWeek reported that about 50% of small businesses in the U.S. ‘‘are computerized’’ (Depke 1989, 216). Then, in 1992, Intuit introduced their general-

purpose Quickbooks software (Evers, McHenry, and Gideon 1992). For the first time, a single integrated 2

off-the-shelf product

could handle practically all accounting functions, from recording orders placed with suppliers, to tracking inventory, to printing

billing invoices, cash collection and receivables management, to the handling of accruals and deferrals. Other vendors followed

suit and soon small businesses could choose from a number of what Bellone (1997) called ‘‘Swiss-Army accounting packages.’’

Three years later the literature seemed to assume that almost all small businesses were using computer-based tools for their

accounting, and that the few who weren’t, would be shortly (Tavakolian 1995). By the turn of the millennium, articles were

appearing with the claim that the integrated accounting packages had fully permeated the small business accounting domain.

For example, Alfieri (2006, 33) wrote, ‘‘Simply Accounting by Sage and Intuit Quickbooks have become the industry standard

in small business accounting.’’ Bressler and Bressler (2006 ) published a study reporting that 41 of their 64 small businesses

were using Intuit’s Quickbooks general-purpose integrated accounting software. Our literature review found almost 200 studies

addressing accounting recordkeeping within the small business environment. These studies examine companies who had

already adopted, were in the process of adopting, or were considering the adoption of, such systems. Discovering any

independent research into the level of penetration of specific integrated computerized accounting information systems into the small business environment was difficult; almost every study seemed to assume that all small businesses were using these tools.

Judging from the absence of literature on manual accounting systems, it is logical to conclude that all small businesses are

indeed using commercial integrated computerized accounting systems, with Quickbooks being the de facto standard.3 We asked, is the absence of data to the contrary sufficient to conclude that this is the case? An initial grant was obtained to develop

and take a survey to determine which, if any, accounting software enjoyed adoption by a majority, or even a large minority, of

small businesses.

2 It is important to draw a distinction between ‘‘computerizing’’ the accounting functions, and an ‘‘integrated computerized accounting system.’’ The word ‘‘integrated’’ indicates that the system goes beyond the simple use of the computer as a tool for recording, calculation, and tracking (e.g., more than mere spreadsheets, cash register applications, etc.). The integrated computerized accounting environment allows a single software application to not only keep accounts necessary for financial statement production, but also to produce documents used in transaction cycles ( purchase orders, sales orders, billing invoices, remittance advices, checks), and also seamlessly integrate data across all business functions. An integrated accounting system can produce a comprehensive set of reports (accounts receivable aging, inventory summaries, customer resource management, profitability analyses, budgeting, and other useful management information) in addition to simple financial reporting usually associated with the word ‘‘accounting.’’ This integration makes these packages analogous to the large-scale integrated computer systems used by major corporations, which are generically referred to as Enterprise Resource Planning (ERP) systems. The term ‘‘general purpose’’ indicates that a software package is intended to accommodate a wide range of industries, business types, and markets. Quickbooks, for example, is general-purpose and can be used by many different kinds of small business. General-purpose software is contrasted with software designed for a single specialized type of business. Software designed specifically for a particular industry, such as a medical practice, construction firm, or law office would not be ‘‘general purpose’’ software. General purpose software typically, but not always, is constructed around the accounting and recordkeeping function, whereas industry specific software frequently ‘‘tacks on’’ accounting features, adding them to what is otherwise a software package intended to facilitate the business’s operations.

3 The assumption (that all small business is using or planning to use integrated computer systems) is challenged by incidental data from only one single study (Woznica and Healy 2009). Of the 73 companies in their sample, all were using computers, but over three-quarters did not have an integrated computerized accounting information system. This would seem to be out of line with the preponderance of the literature. Even the Woznica and Healy (2009) study did not address small businesses not using computers in any capacity.

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III. RESEARCH QUESTIONS

The original research question examined which of the general purpose accounting software packages are the most

prevalent in modern small businesses. However, early in the data gathering process, it became apparent that a large number of

small businesses were not using such software.

This unexpected discovery did not affect the methodology of the study, the data collection process, or the data already

collected or yet to be collected. It did, however, raise two new questions. Thus three formal research questions were formulated

before data analysis was begun:

RQ1: Is the adoption of commercial integrated general-purpose accounting software as ubiquitous as the literature seems

to assume?

RQ 2: Is there one or more package(s) which appear to be the most commonly-used commercial integrated general-

purpose accounting software used by small businesses?

RQ 3: Why did small businesses choose their particular accounting software packages over other packages, or decide not

to use such packages at all?

IV. METHODOLOGY

Definition of the Term ‘‘Small Business’’

Inherent in any research involving small businesses is a determination of exactly what constitutes a ‘‘Small Business’’. A

literature review reveals that there is no universally-accepted, precise definition of a small business. The U.S. Small Business

Administration itself uses different criteria for different purposes. One of the more objective measures is number of employees.

Kalantaridis (2004) reports that the European Union defines small businesses as those having less than 50 employees. While

Reijonen and Komppula (2007) use 10 employees as the cut-off, several other sources use the term ‘‘microbusiness’’ to refer to

companies this small (Baines and Wheelock 1998) (Žnidaršič and Werber 2012). By contrast, Samujh (2011), Kelly and

Kawakami (2008), and Maltare, Monahan, and Shah (2010) all define microbusinesses as having five or fewer employees.

The authors elected to use number of employees as our criteria, choosing 50 employees as the cutoff, primarily because

this is the criteria used by a larger number of studies (and a number of publications by the Small Business Administration).

Additionally the 50-employee criteria is used by the Small Business Development Center as well as the Center for

Entrepreneurship at the authors’ institution, as well as an Institute for Entrepreneurship at a large Midwestern state university.

As opposed to many studies (e.g., Bressler and Bressler 2006 ) which looked at a limited defined sample, this study

constructed a sample representative of the small business community at large. But acquiring contact information for a suitably

wide population proved more problematic than imagined. Barbershops, laundries, dental practices, neighborhood grocers,

residential electricians, farmers, local retailers, and numerous other small businesses do not necessarily derive any benefit from

government contracts, and thus would not be included in the SBA (2014) Pro-Net database used by several other studies.

Further, many businesses do not necessarily derive benefit from websites, and thus would not generally appear in any sample

drawn from web-based search engines or other indexes using websites or web presence. Businesses who are members of

Chambers of Commerce and other professional networking organizations might not be completely representative of the small

business community at large, either. Thus, we randomly selected 50 cities of varying sizes from U.S. Census Bureau SMSA’s,

and then selected 20 businesses from each city whose name and/or industrial classification might indicate small business status.

Businesses were selected arbitrarily (e.g., no criteria or other particular systematic process) from generalized online yellow-

page and business searches. An overt attempt was made to select businesses from a wide variety of industries and lines of

business. A one-page questionnaire was prepared and mailed through the U.S. postal service to the 1000 small businesses,

including a self-addressed, stamped envelope for reply. After three attempts, including mailings to another 1000 businesses,

including both a shorter (½ page, six question) paper survey form to return and a URL for a Qualtrics online survey, less than a

dozen total responses had been received. 4

4 In their closing sentence Bressler and Bressler (2006, 60) had said, ‘‘Further research may provide additional information from those small business owners who didn’t respond to the survey, but researchers are likely to find obtaining a significant number of responses an increasing challenge.’’ This statement turned out to be remarkably prophetic. Woznica and Healy (2009) also ran into the problem of low response rates to their survey. They issued 1,863 survey invitations, which after multiple followups yielded only 73 usable responses (a response rate of about 3%). They explained, ‘‘this ratio is not considered particularly low, as business owners and senior managers in small businesses are very often reluctant to participate in such research activities’’ (Woznica and Healy 2009, 121).

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Given the unusable response rate, the data was discarded, and a new strategy sought. Several small business experts were

consulted. 5

Although consulted independently, their suggestions were strikingly congruent. They pointed out some interesting

characteristics of small business owners and offered several suggestions.

First, small business owners are very busy people who often do not see a need to spend time on activities which are

unproductive for their businesses. But these individuals also often display an entrepreneurial spirit and are proud of their

businesses. If the questions can be constructed or phrased as a sincere inquiry about how they run their businesses, many will

gladly share their experiences, wisdom, and insight.

Second, in-person visits to the sample companies would likely prove far more productive than mail or email. Business owners are often ‘‘people persons.’’ It is more difficult for a people-oriented individual to overtly refuse to answer a direct

question from a live interviewer than it is to simply throw away a paper survey, hang up the telephone, or delete an email. 6

Third, each visit should begin with compliments. Such an opening overture instills a positive disposition in the owner

toward the interviewer, increasing the likelihood that the owner would take a minute or two to answer questions.

The consultants all strongly recommended against asking questions about sales figures, gross receipts, volume, profit, and

net income, and any other dollar amount or quantitative measures. Such information is often considered private and proprietary

by many small business owners, and questions about this information might create suspicion or anxiety. All four consultants

emphasized the need for the business owners to be promised complete anonymity.

Interview Approach

The study began again, this time using in-person interviews rather than surveys. 7

Several grants were obtained to cover

travel expenses for researchers to independently visit a large number of small companies across a major portion of the United

States. Routes were mapped out, visiting 34 of the original 50 cities, with the intent of actually visiting 675 of the previously- identified 1000 small businesses. To further bolster the sample size and compensate for business owners who decline to provide

information, additional small businesses encountered along the route were also to be visited, as the opportunity arose. Once the

identified businesses had been visited, the researchers were encouraged to visit other businesses they encountered on the trip.

The selection criteria for including an encountered business was to obtain information from the widest possible array of

different lines of business, different industries, different communities, urban/suburban/rural mix, and different areas of the

country, while staying within the time and mileage constraints of the funding.

The original small companies had been selected from 50 cities in a variety of industries and lines of business. Because of

the nature of the research questions, two kinds of businesses were intentionally excluded from this process. First, franchise

operators for national brands (such as Burger King, SpeeDee Oil Change, Batteries Plus, Pilates, Starbucks, Ace Hardware,

Serv-Pro, Merry Maids, and similar outlets) are often independently-owned small businesses, but they contract with the

franchising company for the use of name branding, advertising, quality standards and such. Generally, the franchise contract

with the parent company (the franchisors, which are not small businesses) require use of the franchisor’s own software and accounting systems by the franchisee.

Second, small businesses that rely on an outside third party for most or all of their accounting and bookkeeping functions

(e.g., a public accountant or bookkeeping service) were also excluded, since the third-party accounting provider uses the

software rather than the small business. 8

The original survey instrument was replaced by a suggested ‘‘script’’ listing the desired information. To make the visit

seem more like a genuine visit and less like an impersonal survey (in accordance with the consultants’ recommendations)

interviewers used the script as a guide to a conversation, rather than a rote-recitation question-and-answer session. The interviewer made notes during and immediately after the visit, to record data for analysis. This allowed a guided conversation,

with opportunity to gather richer data via clarification, expansion and elaboration.

5 None of the consultants had any pecuniary or other interest in the results of the study, and none were involved in selection, evaluation, sales, or operation of accounting software, nor did they have any direct input on the selection of businesses to include in the sample.

6 In the same vein, two consultants independently recommended making a ‘‘cold call,’’ arriving at the business unannounced rather than setting up an appointment. Asking for an appointment over the phone or by mail made it too easy for the owner to decline participation.

7 Rabhunathan and Wobser’s (1995) study used the in-person interview approach rather than surveys. They explained that the detailed nature of interviews allowed the interviewer to collect more in-depth information, and provided opportunities for clarification and expansion as well as follow-up questions and responses.

8 It was found that many small businesses outsource payroll services, while maintaining all other accounting and bookkeeping functions in-house. Additionally, some small businesses occasionally retain an outside accountant to perform compilations or create financial reports for banks and creditors. And many small business owners hire a third-party tax preparer. This study concentrated on accounting systems: means for capturing, collecting, organizing, storing, and reporting business transactions. Businesses who performed their day-to-day recordkeeping and accounting in-house and who outsourced only tax preparation, payroll, and/or compilations are therefore included in our results.

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Upon arriving at a small business, the interviewer began the conversation by complimenting the owner on his/her business,

engaging in ‘‘small talk’’ about the operation, and then introducing himself/herself as a university researcher. The conversation

was gently steered to the subject of accounting and software. The business owner was promised complete anonymity and was

specifically asked whether his or her answers to questions could be used in the study. 9

By using this personal interview

approach, a participation rate of 93% was obtained. The average time spent at each business—originally projected to be around

three to five minutes—ended up being closer to 15 minutes. Some owners eagerly took half an hour or more to talk about their

businesses, offering much more information than the limited data sought by the script and captured for this study.

Only 428 of the planned 675 businesses on the route were located, still in business, open, had the business owner or

knowledgeable employee present, and met the criteria for inclusion in the study. But in addition to visiting the 428 businesses

from the pre-determined list, information was obtained from an additional 1,197 businesses along the way, as the study

deliberately tried to include as many different types of industries as possible. The project required 114 travel days and over 531

hours spent in face-to-face interviews. The project spanned four summers, from 2012 to 2015.

V. RESULTS

Personal visits were made to 1,852 small businesses. Just over one hundred of the 1,852 businesses visited turned out to be

franchise operations, outlets of larger companies, or utilized an outside accountant or bookkeeping service for all or a major portion

of their accounting and recordkeeping. These 107 were excluded from the study as not being members of the population of interest.

In 1,625 of the remaining 1,745 businesses, the owner or principal was present and willing to answer questions about his/

her business and its accounting systems (see Table 1). This represents an overall positive response rate of 93%. This rate is far

above expectations, and is also far above typical response rates for paper and online surveys, proving the wisdom of the

consultants’ recommendations.

Demographics of the Sample

Of the 1,625 businesses whose responses were used in the study, 174 were owner-operated businesses with no additional

employees. Another 53 had only family-member employees. The largest business had 45 employees. Because of the large

number of part-time employees (including many who might work only a few hours per week or even a few hours per month),

the average number of employees per business (12.6 ) is not very meaningful. While specific data on hours worked per

TABLE 1

Business Contacts versus Participation

Count Percentage

Small Businesses Visited 1852 100%

Franchise operations �12 0.6% More than 50 employees (e.g., not a small business by our criteria) �14 0.8% Office, Plant, Store, or Division of Larger Company �27 1.4% Utilize a Third-Party Accountant, CPA, or Bookkeeping Service

a �54 2.9% Small Businesses Visited and Qualifying for Inclusion in the Study 1745 94.2%

Small Businesses Visited and Qualifying for Inclusion in the Study 1745 100%

Business Owner or Principal Not Available for Interview �60 3.4% Business Owner or Principal Declined to Participate in Study �60 3.4%

Small Businesses Participating in the Study 1625 93.1%

Percentages may not add to 100% due to rounding. a

A business was excluded from the study if it utilized an independent outside (non-employee) accountant or bookkeeping service for day-to-day accounting and recordkeeping functions. However, companies utilizing a third-party for only payroll, statement compilations, or tax preparation were included in the study.

9 While it has recently become common for all surveys to require approval of Institutional Review Boards, this study was begun before such a broad practice was adopted by the sponsoring institution’s IRB. A specific application was made to the research team’s IRB at the beginning of this study. The chair of the IRB concluded that since the study was not ‘‘an experiment using human subjects,’’ formal IRB review and approval was not required. A second query, made after results were gathered, also resulted in a confirmation, since no deception or misleading statements had been made during the interviews.

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employee was not collected, it appeared that the typical business would have the equivalent of between five to ten full-time- equivalent employees.

Interviews were conducted in 43 of the 50 states, plus the District of Columbia. Cities of all sizes were represented, from

major metropolitan areas (such as Philadelphia, St. Louis, Denver, Boston, Dallas/Fort Worth, and New Orleans) to medium-

sized ones (Tulsa, Birmingham, Tacoma, Raleigh, and Chattanooga), to smaller cities (Anderson [SC], Lake City [FL], Monroe

[MI], Fort Smith [AR], and Laramie [WY]), to tiny towns and rural communities (Metter [GA], Hayes [KS], Kearney [NE],

Bennington [VT], Seward [AK], and Kittery [ME]).

After data was collected, businesses were assigned to their respective six-digit North American Industry Classification

System (NAICS) code. 10

The NAICS code assigned to each business was verified and confirmed independently by a second

research assistant. 11

The 1,625 businesses in the analysis represented 447 different six-digit NAICS codes, indicating that the

project succeeded in its goal of obtaining data from a wide range of industries. The businesses included common types of small

business, such as restaurants, dry cleaners, gift/curio shops, automotive mechanics, tanning salons, dental practices, and many

others. It also included many rarely-encountered specialty businesses such as railroad signal repair, gasoline pump repair, a

small-town weekly newspaper, a manufacturer of professional exhibition displays, a communications-tower erector, a sign

painter, and a business which built custom replicas of antique clocks. The study included six farms of various types, two plant

nurseries, and a private fixed-base operator at a small city airport. 12

The average age of the businesses in the study was 5.65 years. The oldest firm had been in business for 62 years, the

youngest had been started 3 weeks before the interview.

Research Question 1

RQ1 asked, ‘‘How widespread among U.S. small businesses is the adoption of integrated general-purpose accounting

information systems?’’ As can be seen in Table 2, over a third of the businesses (578 of 1,625, or 35.6%) performed their

financial accounting and bookkeeping using no computer application whatsoever.

These non-computer accounting systems ranged from hand-written checkbooks and check-registers, hand-written sales

tickets, spindles, manual (or even verbal) purchasing orders and records, and 3 3 5 card inventory control systems. There were

TABLE 2

Non-Computerized Accounting Systems Used By Small Businesses

Count Percent Percent

Small Businesses Participating in Study 1625 100%

No Computer Accounting Applications 578 100% 35.6%

Completely Manual (no technology) 70 12.1% 4.3%

Basic Technology (cash registers, calculators, etc.) 492 85.1% 30.3%

Word Processing only (invoice printing, PO printing, etc.) 16 2.8% 1.0%

Computer Use Limited to Spreadsheets or Similar Apps 391 24.1%

Computerized 1 or 2 Accounting Functions Only 148 9.1%

Total: Businesses Not Using Computerized Accounting Software 1117 68.7%

Totals do not add due to rounding.

10 ‘‘NAICS was developed under the direction and guidance of the Office of Management and Budget (OMB) as the standard for use by Federal statistical agencies in classifying business establishments for the collection, tabulation, presentation, and analysis of statistical data describing the U.S. economy. Use of the standard provides uniformity and comparability in the presentation of these statistical data. NAICS is based on a production-oriented concept, meaning that it groups establishments into industries according to similarity in the processes used to produce goods or services. NAICS replaced the Standard Industrial Classification (SIC) system in 1997.’’ (Census Bureau 2014).

11 Surprisingly, out of 1625 codings, only 21 turned out to be ambiguous. All conflicts were arbitrated by one of the authors of the study, and all three individuals agreed with final NAICS assignment.

12 Five establishments engaged in two or more unrelated business lines, but the owner insisted it was a single business with a single accounting system and set of books: A tobacco shop had a fair-sized snack food operation, a pet store sold a large variety of batteries and related electrical items, a plant nursery sold computer networking equipment and supplies, a software development business sold specialty parts for antique automobiles, and a dietary supplement/health-food store did a thriving business making custom frames for pictures, paintings, and photographs. Since NAICS numbers were assigned only to verify a wide variety of business types and not used in any specific analysis, these businesses were classified under both NAICS numbers represented by their activities. Interestingly, all but one of the eighteen law firms, law offices, and attorneys contacted flatly declined to answer questions or participate in the study. No other industry displayed such hesitancy to participate.

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even fifteen companies using sophisticated but antiquated pegboard billing systems. However, almost 88% of these non-

computerized companies used some form of technology for at least some significant part of their recordkeeping process. Such technology included adding machines, calculators (both printing and non-printing), simplistic cash registers, vendor-provided

credit-card readers with receipt printers, and similar tools. In a few cases, invoice and purchase order printing (using word-

processing-based templates, not accounting applications) were being used. Additionally, many companies were using online

banking applications via web browser access for disbursements and bill paying, and many were using credit card applications

provided by credit card services for deposit information.

However, none of these 578 businesses used any computer tool which could be interpreted as providing classic

‘‘accounting’’ processes: no computer-based debit/credit, general ledger, receivables management, purchase/inventory tracking,

payables scheduling, cash management, or managerial reporting or financial statement preparation using the computer.

In most of these companies there was no general journal, no general ledger, and no true debit/credit entries. In over 300 of

the 578 companies, neither the owner nor the employee charged with the accounting responsibility seemed knowledgeable with

double-entry accrual accounting principles. In the cases where the interviewer asked how the owner handled profit and loss

statements, balance sheets, or other financial reporting requirements, the owner sometimes indicated that Schedule C of the U.S.

Income Tax Return served as the only basis for any financial classification or reporting. In several, the owner seemed confused

about what the interviewer was asking.

In addition to these 578 non-computerized companies, another 391 businesses (24% of the 1,625 total sample) used

primarily manual transaction records but were utilizing a computer tool, most often a spreadsheet (Excel, OpenOffice,

TrackVia, Google Spreadsheet, WikiCalc, etc.) for summation, categorization, sorting, and/or other arithmetic operation. In

many of these cases, the spreadsheet was simply a check register or simple listing of accounts receivable manually entered from

paper records. In a few, the spreadsheets were being used to facilitate a more traditional accounting operation, such as

depreciation, sales tally, or cash tracking.

Another 148 businesses used some kind of computerized tool intended to facilitate one or two accounting-related

processes. Some contained the word ‘‘accounting’’ in their title ( probably for marketing purposes), but the software would not

be considered an integrated accounting software package. For example, some used a computer application that facilitates the calculation and preparation of invoices and prints sales reports, but does not electronically interface with or have provision for

inventory control, product sales analysis, cash collections, or receivables management. Another example is a simple check-

writing program which prints checks and check registers, along with rudimentary expense classification reports, but has no

other accounting features such as provision for revenue, customer data, general ledger, etc.

As shown in Table 2, a total of 1,117 (almost 69%) of the 1,625 businesses were not using integrated accounting software.

Research Question 2

RQ2 asked: Is there one or more packages which appear to be the most commonly-used integrated general-purpose

accounting software used by small businesses? The results showed that a majority of businesses using computerized

applications are using industry-specific software rather than general-purpose accounting packages. Of the 508 companies using

computerized integrated accounting software packages, 464 of them (over 91%) were using software designed primarily or

exclusively for their specific industry or line of business. For example, the dry-cleaners were using software designed for dry-

cleaning establishments, the pet stores were using software designed for pet stores, dentists were using dental software, and so

forth. Such software was primarily intended to facilitate the operation of the specific business type, and the accounting functions seemed incidental to the operational aspects of the software—rather than being the primary basis for the software. In

most cases the business owner did not refer to the software as ‘‘an accounting system,’’ but rather the ‘‘computer system’’ or

‘‘business’ information system.’’

In contrast to the predominant theme in both academic and popular literature, less than three percent (44 companies) of the

1625 small businesses were using any of the well-known general-purpose integrated accounting packages such as Quickbooks,

Peachtree, DacEasy, Simply Accounting, Microsoft Office Accounting, MYOB, Sage, etc. Table 3 indicates the distribution of

the various software adoptions for the general-purpose accounting packages. 13

As shown in Table 3, only 33 companies out of the 1,625 in the sample used Quickbooks in any capacity, and only 31 (less

than 2% of the sample) were using Quickbooks as the integrated accounting information system it was designed to be.

However, from the small number of companies which are actually using commercial integrated general-purpose accounting

software, the data verifies that Quickbooks is still more prevalent than any other commercial package.

13 Table 3 does not list the adoptions of those companies using industry-specific software because the list would be many pages long. There are numerous different packages available for almost every industry.

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Research Question 3

RQ3 asks, ‘‘Why do small businesses choose their particular accounting software packages?’’ The study was not originally designed to address this question in depth, but since many of the business owners using the integrated software had shared this

information, the question was added to the study as an exploratory inquiry.

Of the 44 companies using general-purpose AIS packages, Table 4 shows that 16 reported their choice was influenced by

recommendation from a consultant, family member, or acquaintance, 12 indicated they chose based on brand recognition or

reputation, 9 said the employee charged with accounting duties selected the software, 2 said they were already familiar with the

software, 2 said ease of use, and 2 said cost was a major factor. One did not provide an answer.

Table 5 reports the reason for adoption of the 341 companies who used industry-specific software. These results contrast

starkly with the answers provided by users of general-purpose packages. As shown in Table 5, 202 of the users of industry-

specific software stated their reason for choosing their software was ‘‘it is the best out there for their industry,’’ e.g., had high ratings in their industry’s literature and culture. Another 162 said they had investigated various products and their software best

met their individual business needs. Forty-six said that their employee bookkeeper had recommended or selected it. Thirty-

three said that an outside accountant, consultant, or colleague had recommended it. Fifteen said that they chose their software

TABLE 3

Computerized Accounting Systems Used By Small Businesses

Count Percent Percent

Small Businesses Participating in Study 1625 100%

Companies Using Computerized Accounting Software 508 100% 31.3%

Companies Using Industry Specific Software 464 91.3% 28.6%

Companies Using General-Purpose Accounting Software 44 8.6% 2.7%

Companies Using General Purpose Accounting Software 44 100% 2.7%

Intuit Quickbooks as Primary Accounting Software 31 70.4% 1.9%

Quickbooks feature, but not as a complete integrated AIS 2 4.5% 0.12%

MYOB 2 4.5% 0.12%

Microsoft Office Accounting 2 4.5% 0.12%

Sage (Peachtree) 2 4.5% 0.12%

Sage (Simply Accounting) 1 2.3% 0.06%

Redwing Centerpoint 1 2.3% 0.06%

Cougar Mountain Denali 1 2.3% 0.06%

PassPort 1 2.3% 0.06%

Zoho 1 2.3% 0.06%

Percentages do not add due to rounding. Some of these packages are no longer sold, but the business(es) were still using software purchased years earlier because it still met the needs of the organization. Similarly, it was noticed that some businesses were using old and obsolete versions, although specific numbers are not available because the question of software version currency was not in the interview script.

TABLE 4

Reasons for Selecting The General Purpose Accounting Software Package

Count Percentage

Businesses Using General-Purpose Accounting Software 44 100%

Recommendation by consultant, family member, friend, etc. 16 36%

Brand recognition and general reputation of the product 12 27%

The accounting employee chose the software 9 20%

Already familiar with the software package 2 5%

Ease of Use 2 5%

Low Cost 2 5%

No answer 1 5%

Percentages do not add to 100% due to rounding.

70 Fordham and Hamilton

Journal of Information Systems Volume 33, Number 2, 2019

because ‘‘it was the only one available for their industry’’ at the time they started the business (which implied they wanted

software tailored to their business/industry rather than a general purpose package). Six could not remember or did not have a

specific answer.

It is significant to note that none of the users of general purpose AIS packages indicated that their reason for selection was in any way related to a needs analysis or the needs of the business (with the possible exception of those relying on consultants

or other outsiders for a recommendation). This contrasts with the very high percentage of the users of industry specific software

who indicated that they had performed such a needs analysis, had compared software, or had personally investigated industry

practices rather than merely relying on others’ recommendations. It would therefore appear that there is a correlation between a

small business owner performing an information system needs analysis and the choice of an industry-specific package rather

than a general-purpose package.

Additional Findings

One question missing from the original interview script, but added later as the researchers noticed the increasing

number of businesses not using computerized accounting software, was, ‘‘Why do you not use a computerized accounting

software package?’’ This question was posed to 836 of the 1,117 companies that did not use an integrated computerized

system.

Table 6 shows the responses. Many business owners felt the effort, time, and ‘‘hassles’’ involved would exceed any

benefit from such software. Even some larger business owners expressed displeasure with computer-based systems based on

rumors and anecdotal evidence from users of computerized packages. Specifically mentioned as impediments were the need

for continuous upgrades to hardware, operating systems, and software versions. Repeatedly mentioned was the constant

change in user interfaces between upgraded versions and the need for continual retraining using the new interfaces and

operation of new versions. Fear of viruses, software glitches, hardware failures, and information security issues were also

frequently mentioned.

While cost of the hardware and operating system upgrades was raised, cost of the software was not. A few owners

expressed doubts that they (or their accounting employee) could learn the software. Others expressed displeasure and disdain

for the required time and effort they perceived as necessary to learn the packages.

Since the study spanned four years, a statistical analysis was performed to see if the results were changing over time. It

would be logical to assume that, as information technology permeates more thoroughly into American life, more small

companies would being using computers in an integrated fashion. Table 7 shows that this is not case. The only change which

was significant at the p , 0.05 level is the fact that more companies were using industry-specific accounting software as

opposed to general-purpose software in the final year of the study. However, since the intervening years did not display such a

trend, a definitive conclusion cannot be drawn from the single year. A quick analysis of the companies surveyed in the latest

year did not yield a noticeable difference in sample composition (type of business, size, etc.).

It has been suggested that the longer a business is in operation, the more likely it is to grow and therefore the more likely

the business uses a computer system. The study included a question asking for the number of years the owner had been

operating the business. This wording was problematic, as the owner of several businesses indicated that he or she had owned

and/or operated another business in the same industry prior to the current one, in some cases using the same assets at the same

location. It was decided to record only the number of years the current business had been in operation. The ‘‘age of the

TABLE 5

Reasons for Selecting The Industry-Specific Accounting Software Being Used

Count Percentage

Businesses Using Industry-Specific Accounting Software 464 100%

High Ratings, Good Reviews, and/or Widespread Adoption in the Industry 202 43%

Investigation, Information Needs Analysis 162 35%

Selected by the accounting or bookkeeping employee 46 10%

Recommendation of consultant, colleague, or other outside party 33 7%

The only industry-specific software available (at the time selected) 15 3%

No answer or cannot remember 6 1%

Percentages do not add to 100% due to rounding.

Accounting Information Technology in Small Businesses: An Inquiry 71

Journal of Information Systems Volume 33, Number 2, 2019

business’’ was compared to whether the business used: (1) accounting software, (2) manual procedures with spreadsheets, or (3)

non-computerized accounting procedures only. No significant correlation was found ( p . 0.55 in all cases). 14

Observations on Internal Control

Of the 44 companies using integrated general-purpose accounting software, the business owner himself/herself personally

handled most or all of the accounting and recordkeeping in 12 of them (27%), or had significant personal oversight and/or

checks and balances on the accounting system in another six companies (14%). Twenty-six of the 44 companies (60%) utilized

a full-charge bookkeeper or other employee/employees who had been given full and complete responsibility for all accounting

functions with little or no oversight, controls, or even review by the owner. In 17 of the companies, multiple employees had

access to various parts of the system to some degree, without any systematic, functional, or other internal control or oversight.

There were no checks/balances, review, reporting, reconciliations, or any other control to catch employee mistakes, error, fraud,

or defalcation.

Although data was not specifically collected on control practices of the other companies, a perusal of the interview results

of the full sample shows that a full-charge bookkeeper—with little or no oversight by the owner—appears to be the norm for

the small businesses included in this study. If such a high rate of full-charge bookkeeping with no oversight or error-checking is

representative, this may have implications for the reliability of accounting data in the small business environment.

VI. SUMMARY AND IMPLICATIONS

To summarize, this study shows that fewer than a third of U.S. small businesses currently use integrated computer systems

for their accounting processes, contrary to the impression given by prior literature. The results also suggest that of the

businesses which do use integrated software, almost all are using industry-specific software designed primarily to facilitate day-

to-day business operations, rather than software intended for accounting purposes. Less than 10% are using general purpose accounting packages.

These results appear to support a conclusion that Quickbooks is still the dominant player in the ‘‘general purpose, Swiss-

army accounting package’’ market, but a far larger proportion of small businesses appear to have ignored or abandoned those

TABLE 6

Reasons Cited for Not Using a Computer-Based Accounting System

Count Percentage

Businesses Asked for the Reason for Not Using Computer AIS 836 100%

Too much hassle, effort not worth it 744 89%

Effort involved in training and learning 364 44%

Need for continual upgrades to hardware 315 38%

Need for continual upgrades in operating system 305 36%

Time and effort involved in operation 268 32%

Need for continual upgrades to software 16 2%

Don’t see any need for computer software system 290 35%

Fear of viruses, malware, disaster, potential loss of records 161 19%

Computerized system would have little benefit or not pay for itself 126 15%

Downtime from hardware or software issues and problems 101 12%

Lack of confidence in ability of the owner to learn the software 91 11%

Privacy and other information security issues 90 11%

Unreliability, lack of confidence in computerized systems in general 88 10%

Lack of confidence in ability of employees to learn software 34 4%

Hardware is too costly 22 3%

Other, no answer specified 18 2%

Totals and percentages add to more than 100% because some businesses gave more than one reason.

14 Some studies included the race, gender, or ethnicity of the business owner. Given that this metric was not particularly relevant to the purpose of this study, coupled with possible complications in obtaining the data, it was decided very early in the data collection process to drop the factor from the study.

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Journal of Information Systems Volume 33, Number 2, 2019

broad-spectrum products for industry-specific offerings, packages which are designed around ‘‘operating the business’’ rather than ‘‘keeping the books.’’

We believe the most important implication of our study is the potential for research into the majority of small businesses,

who have not adopted integrated computerized accounting and recordkeeping tools. Investigation might be made into why,

given the ubiquitous nature of technological integration, these companies still either have no need, do not see a need, or are

unaware of the need, for using the integrated information tools available today. The lack of studies, articles, and even mere

mention of the existence of this large demographic of American business provides ample unanswered questions relating to cost-

benefit, effort-benefit, age of business and owner, nature of the industry, nature of the organization, and numerous other factors

for exploration.

Additional research opportunities exist in analyzing those non-integrative technological tools which are being used by

these companies—things such as online bill payment, spreadsheets, online purchasing, shipment tracking, among others. What

is the relationship between these non-integrative tools and the business which has led the business owner to adopt this

technology while not adopting an integrated technological solution which might carry additional benefits for the business

owner and/or managers?

One tangential implication is that information-savvy small business owners recognize the contribution of technology in

providing useful information. These proprietors have taken the time to analyze their information needs, and are cognizant of the

fact that information requirements extend beyond mere accounting and include many operational and functional areas of their

business. Hence, these business owners have investigated and discovered computer packages which are specific to their

industry and provide a more targeted and customized solution than the general-purpose accounting packages.

This is not to say, however, that non-computer-using businesses are not information savvy. Some business owners who are

not using computerized accounting packages may indeed have taken the time to analyze their information needs, and concluded

that the cost-benefit of such a system did not warrant the time or effort. This could be the subject of a future study.

Alternatively, the results might be interpreted to implicate the notion that there is opportunity to educate and inform some

small business owners on the benefits of using integrated information systems over the ‘‘piecemeal’’ deployment of technological tools they are now using. It might be possible that some business owners, especially older ones, might remember

the days when individual manual recordkeeping operations were the norm, and may not fully realize the benefits from

integration.

Limitations

This study was originally designed to address the prevalence (or lack thereof ) of specific general-purpose small business

accounting packages. Unlike studies such as Janvrin, Pinsker, and Mascha (2013), Schaupp and Belanger (2014) or Žnidaršič

and Werber (2012), this study was not intended to investigate factors affecting technology adoption, selection, or deployment. The discovery of a large majority of U.S. small businesses still performing accounting functions with manual or rudimentary

technological tools was unexpected, and added new dimension to the inquiry, but time and funding limitations still prevented

the in-depth analysis of adoption factors.

Several statistical problems prevented analysis of the differences between companies using software and not using

software. Logically, it would be expected that one-person companies might be more inclined to use simplistic or manual

accounting processes whereas larger companies might be expected to computerize. The study was not designed to analyze the

difference, but size of the business (in terms of number of employees) did not appear to be a determinant: Numerous one-

employee sole proprietorships were using industry-specific software, while numerous companies with more than 15 employees

were using manual or non-integrated software tools. Nor did industry code, or any other factor relating to the data collected.

Other factors which might affect the decision might possibly be related to gross sales, sales volume, or number of transactions,

TABLE 7

Year-To-Year Comparison During the Research Period

2012 2013 2014 2015

Small Businesses Interviewed 411 391 402 421

Using Manual Accounting System 283 275 270 289

Using Industry-Specific Software 104 94 108 158

Using General-Purpose Accounting Software 12 11 12 9

Quickbooks 8 9 9 7

Other 4 2 3 2

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Journal of Information Systems Volume 33, Number 2, 2019

but at the recommendation of the consultants, this study did not collect information on these measures. These questions,

however, might be fruitful realms for future investigation. The unanticipated results provide opportunity for future research

concentrating on those businesses which are still using simplistic recordkeeping systems, without the benefit of 21st century

technology. As mentioned earlier, there is ample opportunity to assist small businesses in discovering the benefits of integrated

information systems, and the ways technology can provide those benefits in a cost-effective manner.

Unlike Graves (2016), this study did not look at small businesses which used professional accounting firms or CPAs for

their primary recordkeeping, accounting, and reporting functions. Those organizations seem to be a minority of small

businesses, at least in our sample. But the prevalence of advanced technological tools by those organizations—unaddressed by

this study—would be another interesting inquiry. 15

It is significant to note that a majority of small businesses in this study still use manual paper-and-pencil accounting

methods to some degree—although most use technology of one form or another for at least a part of the recordkeeping process.

Contrary to the majority of the literature on computerized accounting systems in small businesses, it appears that manual check

registers, pegboard accounting systems, cash registers, check-writing software, online banking, calculators, and other tools have

not disappeared entirely, and seem to be satisfactorily filling the needs of many small businesses, given that very few owners in

this study indicated plans to change their accounting systems in the foreseeable future.

Of those businesses which do use integrated computer-based accounting systems, a relatively tiny proportion of small businesses are using general-purpose accounting software packages. Of those few using a general purpose integrated AIS, Intuit

Quickbooks retains its spot as the most popular, by a large margin.

Interestingly, the study discovered a low incidence of internal controls among small businesses. Businesses whose owners

keep the books themselves need fewer controls on the accounting system, but are a small minority of the sample. Most

businesses appear to use a full-charge bookkeeper. Small business owners who actually take an interest in the accounting

processes, oversee the full-charge bookkeeper, or even review the records from time to time also make up a tiny minority of the

sample. Given the prevalence of this model and the lack of controls, the possibility of mistakes, errors, or outright fraud appears

to be high in the small business environment. Again, future research might address the possibilities of mistakes, fraud, and other

information-related problems especially in the sizeable percentage of small businesses without internal controls.

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