International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue VIII, August 2021 | ISSN 2454–6186

The Effect of Accounting Record Keeping Practices on Financial Performance: Special Reference to Small and Medium Enterprises in Anuradhapura District

Somathilake HMDN¹ & Ranathunga KGKD^2
1,²Department of Accountancy & Finance, Faculty of Management Studies, Rajarata University of Sri Lanka

Abstract
In Sri Lankan context Small and Medium Enterprises (SMEs) play a vital role and contribute in significantly to the economic growth and social development through job creation, poverty alleviation and new business development, but on the other hand there are many failures of SMEs due to poor record keeping practices, inaccurate accounting information, reason to inaccurate financial performance and to make poor financial decisions. Therefore, many of SMEs die off soon after their establishments and face financial and management challenges. The purpose of this study is to identify the effect of accounting record keeping practices on financial performance of SMEs in Anuradhapura district. Preparing accounting records (PAR), preparing financial statements (PFS), computer utilization (CU) and respondents’ perception (RP) used as independent variables to measure the accounting record keeping practices. Financial performance (FP) was used as the dependent variable of this study. The research was based on the quantitative research method and the data were collected from 152 SMEs in Anuradhapura district using a structured. Descriptive analysis, correlation analysis and multiple regression analysis used to analyze collected data according to SPSS 25 version. Results revealed that accounting record keeping practices show a positive effect on financial performance of SMEs and preparing financial statements have a significant effect on SMEs financial performance. So, SMEs should highly concern about record keeping practices as one of the tool to improve and increase the financial performance and relevant authorities should develop specific guidelines and must provide templates of account record keeping practices for SMEs to make them very easier and familiar with account practices.

Keywords: Accounting Record Keeping, Anuradhapura District, Financial Performance, Financial Statements, Small and Medium Enterprises

I.INTRODUCTION

SMEs play an important role in economic development through different ways such as creating employment opportunities, training of workers and entrepreneurs, poverty alleviation, income distribution and regional development and so on. Therefore, SME sector can be seen as a core segment of economic development in the country.