CASE STUDY: USING AIS: WHAT IS THE PROBLEM?

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 es: 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.

63

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 Week 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.

64 Fordham and Hamilton

Journal of Information Systems
Volume 33, Number 2, 2019

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 ’’

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

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

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 Administration).

Additionally the 50-employee criteria is used by the Small 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. es 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.

es 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).

Accounting Information Technology in Small es: An Inquiry 65

Journal of Information Systems
Volume 33, Number 2, 2019

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.
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. es 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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Journal of Information Systems
Volume 33, Number 2, 2019

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

Contacts versus Participation

Count Percentage

Small es 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 es Visited and Qualifying for Inclusion in the Study 1745 94.2%

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

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

Small es 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.

Accounting Information Technology in Small es: An Inquiry 67

Journal of Information Systems
Volume 33, Number 2, 2019

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 …