A Study of impact of accounting record keeping practices on financial performance of SMEs – Evidence from Badulla District Sri Lanka
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Date
2015
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Uva Wellassa University of Sri Lanka
Abstract
Accounting practice refers to the ordinary, practical application of accounting and or auditing
policies that occur within a business (European Commission, 2008). The American Institute of
Certified Public Accountants defines accounting record keeping as the analysis, classification and
recording of financial transactions in books of accounts to permit informed judgment and decision
making by the users of the information. SMEs play important roles in the economic growth and
sustainable development of every nation (Maseko and Manyani, 2011). Failure to record business
transactions (bookkeeping) leads to collapsing of the business within few month of its
establishment (Muchira, 2007). It has been recognized that appropriate accounting information is
important for a successful management of any business entity, whether large or small (European
Commission, 2008). One of the reasons for failure of SMEs is not having proper accounting
practices (David and Thomas, n.d.; Ramawickrama, 2011; Scovia, 1998). In other words there is a
direct relationship between book keeping and financial performance. Therefore, poor book keeping
would lead to poor financial performance and proper book keeping would lead to better financial
performance of the SMEs. As such there is need for the owners and managers of the SMEs to
embrace proper book keeping practices in order to be successful in their financial performance
(David and Thomas, n.d.).
There were only few studies conducted in Sri Lankan with regard to the accounting recordkeeping
of Sri Lankan SMEs and financial performance Karunannda and Jayamaha, n.d.). Accordingly, the
first objective was to identify the relationship between accounting record keeping practices and
financial performance of the SMEs and second objective was to identify the challenges SME
owners face in their record keeping in SMEs.
Methodology
The population of this study was SMEs which have got registered in Chamber of Commerce in
Badulla District Sri Lanka. Only 50 SMEs was used to collect data. The convenience sampling
technique was used for the purpose of the research by covering the Divisional Secretariats of
Badulla district Structured questionnaire was used to collect quantitative data and further few focus
group discussions were carried out to confirm the results. Descriptive statistics, Pearson correlation
coefficient and multiple linear regressions were used to analyze quantitative data. The analyzed
data were presented using tables and graphs. In addition, Cronbach Alpha reliability test was
employed to assess the validity of the questionnaire and it was 0.77. The financial accounting
practices measure by using accounting system (AS), accounting principles (AP), accounting
transactions (AT), double entry bookkeeping (DE), use of accounting formats (AF), financial
statements (CFS). Sales growth (SG) used to measure financial performance.
Description
Keywords
Entrepreneurship and management, Management, Marketing, Financial Management, Financial