Analysis of the effects of accounting practices on small and medium enterprise at Meikles Park in Mutare: case of Meikles Park 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.