ANALYSIS OF THE EFFECTS OF ACCOUNTING PRACTICES ON Smes: CASE OF Smes IN MUTARE

ABSTRACT

The accounting practices of SMEs do not supply complete and relevant financial

information needed to improve economic decisions made by entrepreneurs. It has

been noted that the majority of SMEs do not keep complete accounting records

because of lack of accounting knowledge. Most SMEs do not prepare financial reports

at all. Financial analysis is not done as a result. Therefore, the purpose of this study

was to evaluate the accounting practices of SMEs at Meikles Park in Mutare, so that

recommendations can be made to entrepreneurs on effective strategies that can be

adopted to improve their financial accounting practices. The research was guided by

the following objectives, examine the types of accounting records maintained by

informal traders, examine the types of financial reports being generated by informal

traders and evaluate the extent to which by informal traders are engaged in financial

performance measurement. The researcher used survey method making use of

questionnaires supplemented by follow-up face to face interview. The study used

descriptive statistics tables. A population of 127 and a sample of 57 respondents were

used in this research. The findings on how books are kept revealed most of the

informal traders use single entry bookkeeping systems and most of it is paper work as

few of them have no computers, most of them don’t have qualified bookkeepers. Most

informal traders do not produce any financial reports neither do they measure their

financial performance. Findings on the growth of SMEs reveals that there is still slow

and stunted growth, most of these enterprises have existed between 1-2 years and few

of them go above 5years. The researcher recommends that present informal business

owners/employees to use the accruals basis of accounting to make sure that they

produce the complete picture of the firm’s activities. SMEs are also recommended to

use the double entry system to enable them to maintain adequate records for the

preparation of financial statements. Lastly, the government should provide training

programs in financial accounting skills for the owners of SMEs. The government

should organize free seminars that will teach entrepreneurs on how to keep proper

written records. Findings on accounting practices could be used as the basis for

specific and detailed research into every separate aspect of accounting practices in

Zimbabwe such as financial reporting and analysis, usefulness of cash flows and ratio

analysis, outsourcing accounting services and the role of professional bodies in

enhancing accounting practice in the country.