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The Effect of Accounting Record Keeping Practices on Financial Performance:

Special Reference to Small and Medium Enterprises in Anuradhapura District

Article · January 2021

DOI: 10.47772/IJRISS.2021.5818

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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 KGKD2
1,2
Department of Accountancy & Finance, Faculty of Management Studies, Rajarata University of Sri Lanka

Abstract: In Sri Lankan context Small and Medium Enterprises from providing 36% of industrial development. Despite such
(SMEs) play a vital role and contribute in significantly to the importance to the economy, access to finance is one of the
economic growth and social development through job creation, biggest challenge SMEs face, and due to this, they have
poverty alleviation and new business development, but on the difficulty to sustaining the business resulting in more than
other hand there are many failures of SMEs due to poor record
40% of SMEs are ceasing to exist within ten years of
keeping practices, inaccurate accounting information, reason to
inaccurate financial performance and to make poor financial operation. Main reason why SMEs do not have easy access to
decisions. Therefore, many of SMEs die off soon after their formal finance is due to the lack of formality in running the
establishments and face financial and management challenges. business and the indiscipline in financial record keeping
The purpose of this study is to identify the effect of accounting which leads to financial institutions not having confidence and
record keeping practices on financial performance of SMEs in not being able to rely on these SMEs to provide them with
Anuradhapura district. Preparing accounting records (PAR), reliable information whether they are financial statements or
preparing financial statements (PFS), computer utilization (CU) business data, (CA Sri Lanka, 2014). However, evidence has
and respondents’ perception (RP) used as independent variables been found that there are many failures of SMEs in Sri Lanka
to measure the accounting record keeping practices. Financial
such as inadequate capital, inadequate institutional credit
performance (FP) was used as the dependent variable of this
study. The research was based on the quantitative research facilities, Use of outdated technology, improper accounting
method and the data were collected from 152 SMEs in techniques, inadequate sales and carelessness of small
Anuradhapura district using a structured. Descriptive analysis, businesses are main problems faced by the Sri Lankan SME
correlation analysis and multiple regression analysis used to sector. Meanwhile SMEs fail to produce reliable financial
analyze collected data according to SPSS 25 version. Results statements, because most of them maintain financial records
revealed that accounting record keeping practices show a in a very informal manner. As a result of these SMEs often
positive effect on financial performance of SMEs and preparing face accounting and financial management challenges since
financial statements have a significant effect on SMEs financial poor record keeping, inefficient use of accounting information
performance. So, SMEs should highly concern about record
in financial decision making. Proper accounting is most
keeping practices as one of the tool to improve and increase the
financial performance and relevant authorities should develop important in making sound economic decisions, (Amoako,
specific guidelines and must provide templates of account record 2013). In business management, past research has shown that
keeping practices for SMEs to make them very easier and proper records of all business transactions are essential to the
familiar with account practices. success of the business. Therefore keeping of proper records
and writing of financial statements have great benefits for
Keywords: Accounting Record Keeping, Anuradhapura District,
Financial Performance, Financial Statements, Small and SMEs. They are important management tools because they
Medium Enterprises provide an accurate reflection of financial performance of the
business, Muchira (2012). According to Bandara & Rathnasiri
I. INTRODUCTION (2016) they explained that the rate of business failure among
SMEs is 45 percent in Sri Lanka and seven variables are
S MEs play an important role in economic development
through different ways such as creating employment
opportunities, training of workers and entrepreneurs, poverty
significant in explaining business failure such as business
planning, record keeping, issuing postdated cheques,
alleviation, income distribution and regional development and budgetary controls, staff quality, basis of recruitment and
so on. Therefore, SME sector can be seen as a core segment of commitment for business management. It shows that these
economic development in the country. SME’s contribution to variables fall into few broader areas of business such as lack
the total GDP of the country has increased to 52% in 2011 of prior business planning, lack of up to date reliable
from 40% in 2010. Of the 30,000 registered SMEs in the accounting data, inappropriate financial and human capital
country, approximately 75% are based outside the Western management, and inadequate commitment of owners for
province, with rural SMEs contributing as much as 12% to the business management. An effectiveness in financial
country’s GDP, of which 78% is for agriculture GDP, apart management and live recording of accounting data are basis of
good foundation for business success. Central Bank of Sri

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

Lanka (1998) has been found that SMEs have to face many owners/managers kept various records which included the
difficulties due to inadequate capital, use of outdated purchase day or order records, the receipt book, the
technology, inadequate institutional credit facilities, expenditure or bills book, the payroll records and the assets
inadequate knowledge, improper accounting techniques and register. Further investigation revealed that the MSEs do not
inattentiveness of small businesses. Unfortunately, most of keep complete accounting records because of lack of
SMEs lack of funding from bank and other financial accounting knowledge and the cost of hiring professional
institutions because this sector is like to be a high risk accountants. As a result, there is inefficient use of accounting
investment area due to there is bad accounting practices. And information to support financial performance measurement by
also the SME sector fails to produce proper financial reports SMEs. This made it difficult for the entrepreneurs to calculate
for better assessment, Emmanuel et al (2014). According to their business profit efficiently. Majority of SMEs do not
Eloho (2016) stated that the misuse, Poor and inaccurate keep proper records of their businesses, hence, inability to
record keeping of account information to misjudge the measure financial performance and position of their
financial condition of SMEs and make poor financial businesses. SMEs operators are keeping improper records like
decisions. Because of these issues SMEs have to face many note books, writing on walls and papers. Only few of SMEs
difficulties to succeed and raise funds or borrowings. At are keeping proper records such as cash book, sales day book,
worst, this sector could eventually face failure and petty cash book, purchase day book, income statement and
bankruptcy. Therefore, this research focuses on accounting statement of financial position, Dawuda and Azeko (2015).
record keeping practices and its effect on financial Also they confirmed that SMEs owners are ignorant of the
performance of SMEs in Sri Lanka. value of keeping proper financial records and have perception
that it is waste of time and resources to Establishment of a
II. OBJECTIVES OF THE STUDY
Department of Finance and Accounting with qualified staff
Main Objectives taking into account. Further they emphasized lack of
education and high cost of hiring qualified staff made it very
 To investigate the effect of accounting record difficult for the owners to keep proper books of accounts.
keeping practices on financial performance of SMEs. Some also failed to keep proper books of accounts in order to
Sub Objectives avoid tax. According to Maseko and Manyani (2011) found
that there was a positive relationship between the preparation
 To examine the effect of preparing accounting of accounting records and the financial performance of SMEs.
records on financial performance of SMEs. Raymond et al (2014) researched on contributions of
 To examine the effect of preparing financial accounting records in efficient performance of SMEs. They
statements on financial performance of SMEs. revealed that some SMEs may not be able to adopt elaborate
 To examine the effect of computer utilization on systems of accounting, a number of small scale business kept
financial performance of SMEs. no records pertaining to their financial operations, finance, etc
 To examine the effect of respondents’ perception on while some employed professional accountants to keep proper
financial performance of SMEs. accounting records of their business. The accounting records
keeping contribute to the performance of SMEs. But, SMEs
III. EMPIRICAL REVIEW
do not keep proper accounting records of their activities. This
Preparing Accounting Records and Financial Performance study also revealed that accounting records keeping
contributes significantly to the performance of SMEs and if
Good records provide the financial data that help the business
proper records are kept, they will facilitate efficient, proper
operate more efficiently, thus increasing the profitability.
timely decision making and enhance performance in small
Accurate and complete records allow the business manager
business. According to Amoako (2013), he investigated the
and accountant to identify all business assets, liabilities,
record keeping strategies utilized by SMEs in Kumasi
income and expenses. That information helps to identify both
(Ghana) through data based on responses to a structured
the strong and weak phases of the business operations. Nelson
questionnaire from 210 SMEs in Kumasi. The results revealed
and Onias (2011) concluded that keeping accurate accounting
that SMEs do not maintain proper books of accounts because
records creates a profitable business. Madurapperuma et al
owners do not appreciate the need to keep accounting records,
(2016) found that SMEs keep complete set of accounts to
lack the necessary accounting knowledge and blame the cost
capture sales and cost of sales and results confirmed that
of hiring accounting professional. Consequently, the
preparing accounting records positively influence on the
application of accounting information to support assessment
performance of SMEs. However, few numbers of SMEs are
of financial performance by SMEs in Ghana is inefficient.
keeping primary entries to record information. Some small
Rahamon and Adejare (2014) investigated the impact of
and medium-sized entrepreneurs have kept primary entries to
Accounting Records Keeping on the Performance of the Small
record information. Muchira (2012) investigated extent to
Scale Enterprises and data collected were analyzed using both
which the owners or managers of Micro and Small Enterprises
the qualitative and quantitative methods. Findings revealed
keep records in their businesses, focusing on 84 SMEs.
that majority of the respondents keep business accounting
Findings revealed that, some of the Medium Sized Enterprise
records. Records are kept on cash basis. Sales purchases,

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

creditors and debtors, receipts, invoices, payment vouchers employed by SMEs in Zimbabwe by using target population
are used as record keeping documents which help to reduce comprised of 100 SMEs. The results confirmed that most
operating costs and improve efficiency and productivity. SMEs do not prepare a complete set of financial statements
Further they revealed that, there is a strong positive with some not preparing any financial statement at all. This is
relationship between accounting record keeping and supported by only 27 percent of SMEs preparing financial
performance of small scale enterprises. This implies that statements to report financial performance. An entity may fail
accounting record keeping affects performance of small scale to prepare financial statements even with well-maintained
enterprises. Based on above literature, First hypothesis books of accounts because the preparation of financial
developed as, statements requires accounting skills. According to Karunanda
and Jayamaha (2011) concluded that there is significant
H1: There is a significant effect of preparing accounting
positive correlation between the financial statement analysis
records on financial performance of SMEs.
practices and financial performance of SMEs. Therefore, the
Preparing Financial Statements and Financial Performance SMEs who are analyzing financial statements are performing
well than those who do not. Therefore these studies show that
Financial statements refers to formal and original statements
SMEs do not prepare financial statement even they maintain
which are prepared to disclose financial health in the terms of
accounting records. Because of that preparation of financial
profits, position, and prospects as on a certain data. According
statement require accounting knowledge and skills. As a result
to Rathnasiri (2014) book keeping alone without preparing
of those SMEs owners cannot perform financial analysis and
reports is likely not to be fundamental in aiding decision take proper decision to establish trends to know whether their
making unless proper reports are prepared and analyzed to businesses are doing well or not. Therefore it was found that
attach a meaning so as to an help decision makers.
there was a positive relationship between the preparing
Madurapperuma et al (2016), concluded that most SMEs do
financial statement and financial performance. Based on
not prepare a complete set of financial statements. An
above literature, Second hypothesis developed as,
organization may fail to prepare financial statements, even
with well-maintained account books, as accounting H2: There is a significant effect of preparing financial
knowledge/skills are required to prepare financial statements. statements on financial performance of SMEs.
Financial statements provide the most basic and important
Computer Utilization and Financial Performance
information in decision making. Good financial decisions are
predicted based on the ability to trust reliable financial Studies revealed that though technology is developed fast,
information and financial statements. Inefficient decisions can most of SMEs don’t adopt to use ICT for accounting related
lead to poor financial management and ultimately lead to activities. They used old method such as note books, writing
misery / failure. Efficient use of financial statements in on walls and papers to record accounting information.
decision making can improve financial management and keep Therefore record keeping is not attractive and they think it is a
the company viable. According to Auken & Carrahe (2013) costly and time consuming task. There are various accounting
that it is a prerequisite for making financially sound decisions, packages and computer software (Excel) can be used for
even with reliable information. Madurapperuma et al (2016) accounting related activities such as Quick book, Sage,
found that there was a positive relationship between preparing MYOB etc. Madurapperuma et al (2016) found that 73
financial statements and financial performance based on target percent of the SMEs don’t use Information Technology (IT)
population comprised of 100 registered SMEs in Gampaha for keeping accounting records. 44 percent of the respondents
district in Sri Lanka. They further stated that, when business keep manual records and 29 percent don’t keep any of the
grows the need to prepare complete set of financial statements records. Also 15 percent of SMEs use excels and 12 percent
increases, especially into medium size. It is at a medium size use an accounting package for keeping accounting records.
that the business financial performance reporting will open They further concluded that record keeping using ICT in
not only to internal users but also to external users like SMEs is therefore not being done for the purpose of capturing
lenders. According to Amoako et al (2014), they concluded accounting information for performance measurement. But,
that the income statement is the mostly prepared financial few SMEs use ICT for accounting information for security
report of SMEs. Some of SMEs prepare statements on and control. This is supported by only 27 percent of SMEs
incomes, statement of cash flow, statement of change in preparing financial statements using ICT to report financial
equity and statement of financial position. Some of the performance. Further they, concluded that there is a positive
enterprises however do not keep any records of their business correlation between computer Utilization and financial
transactions and they do not prepare the accounting performance. Rathnasiri (2014) investigated computer
statements. As a result, there is inefficient use of accounting utilization of SMEs in financial management practices and
information to support financial performance measurement by found that SMEs widely utilize the computers in order to
SMEs. This made it difficult for the entrepreneurs to calculate record their day today business transactions, preparation of
their business profit efficiently, Muchira (2012). According financial statements and management reports and cash flow
to Maseko and Manyani (2011) investigated accounting management activities representing more than 70 percent. But,
record keeping practices for performance measurement SMEs do not maintain sophisticated accounting systems and

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

software in accounting, they utilize computers for whatever Thus most of the SMEs may not follow the proper formats of
they do relateing to accounting. Jennifer and Dennis (2015) preparation of financial statements since they do not have any
researched on Financial Management Practices on growth of intention to meet the statutory obligations. But poorly
SMEs. Primary data was collected from 41 SMEs using a prepared accounting information render most SMEs unable to
questionnaire administered to the business owner/manager of evaluate their own financial situation, or to demonstrate
the SMEs. They emphasized that failure to use computers and viability of the business, and or to facilitate loan financing.
computer assisted software among SMEs makes timely This situation is having possible implications for Sri Lankan
financial reporting as well as decision making very difficult. SMEs, to make improper financial decisions and ended up
Also they concluded innovation is a key to the growth of with low performance and high failure rate. Amoako (2013)
SMEs and effort should be made to ensure SMEs are in researched on, what factors motivate others to maintain
vanguard of innovation for them to be competitive through accounting records. Respondents agreed that the main purpose
enhancement of financial management practices through ICT. for keeping the records is “to keep track of receivables and
The ever changing needs of customers once met will enhance payables”. A larger percentage of respondents agree that it is
customer retention and sustainable growth rate. Based on important to monitor what is accounts receivable and accounts
above literature, third hypothesis was developed as, payable when running a business. According to Asaduzzaman
(2016) found that there is a positive relationship between the
H3: There is a significant effect of computer utilization on
Perception / motivation of the respondents and the financial
financial performance of SMEs.
performance of the small and medium scale entrepreneurs
Respondents’ Perception and Financial Performance who keep accounts only for limited needs. majority of SMEs
keep accounting records for the purpose of fulfilling statutory
While most of SMEs don’t maintain accounting records, there
requirements, financing requirements (bank loan), day to day
are some factors that motivate others to maintain accounting
operating activities and for making decisions. Therefore
records. According to Amoako (2013) they are 30 taxation
business should keep accounting records to make appropriate
purpose, income distribution purpose, performance evaluation business decisions not only considering external financing and
purpose, tracking of receivables and payables, for support in tax purpose. Then business owners can make proper decisions
accessing credit/finance and to determine the size of business.
to improve performance of the business. And these
According to the research done by Rathnasiri (2014)
motivations improve their record keeping practices. Based on
demonstrated that majority of Sri Lankan SMEs prepare
above literature, fourth hypothesis developed as,
accounting records with the intention to meet the day today
operative requirements. . Thus, many SMEs do not adopt the H4: There is a significant effect of respondents’ perception on
proper format of financial statement preparation as they have financial performance of SMEs.
no intention of fulfilling statutory obligations. But poorly
IV. METHODOLOGY
prepared accounting information makes it difficult for many
small and medium-sized entrepreneurs to assess their own Conceptual Framework
financial position, demonstrate business viability, or facilitate Figure 1: Conceptual Framework
credit financing. This situation is likely to lead Sri Lankan
SMEs to make inappropriate financial decisions and end up
with low performance and high failure rates. However, the
strength of these factors motivates small and medium
enterprises to maintain proper accounting records. Then, they
can easily make the right decisions about their business
operations, pay the appropriate taxes, and access credit
facilities on the other hand. According to Amoako et al
(2014), who stated that reasons why SMEs prepare final
accounts ranking from major to least are profit determination,
control purposes, bank loan requirement, tax purposes, and
other reasons respectively are the rankings. Rathnasiri (2014), Source: Developed by Researcher (2021)
researched on financial reporting practices of SMEs in Sri
Lanka. The researcher selected the target sample of 60 SMEs According to the figure 1, preparation of accounting records,
which are registered in the Ministry of Industry and preparation of financial statements, computer utilization and
Commerce. Since findings of the study showed that almost all respondents’ perception were identified as Independent
the SMEs are not preparing the financial statements with the variables of the study. Financial performance of SMEs was
purpose of fulfilling that as a statutory obligation. The highest the Dependent variable. Financial performance depend on
percentage representing 88 percent denotes that SMEs are accounting record keeping practices considered in this study.
preparing financial statements as a supportive for day to day Population, Sample and Data Collection
operations. Around 67percent of SMEs prepare the financial
statements with the intention to fulfill the financing purposes. The population of the study is 500 the SMEs registered in

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

Chamber of Commerce, Anuradhapura district in the year PFS 0.794 5

2021. 217 SMEs were selected as the sample according to CU 0.770 5
(Sekaran, 2003) sample selection table. Data collected from
RP 0.719 5
SMEs through a structured questionnaire distributing to
manufacturing, service and retail SMEs. Questionnaire FP 0.875 5
consists with two parts. Part one reflect basic information and Source: SPSS Output (2021)
information about the enterprise and Part two reflect the
information accounting record keeping practices & financial Descriptive Statistics
performance. For this study, the researcher collects secondary Table 2: Results of Descriptive Analysis
data from research articles, newspapers, books, and the
Std.
Internet. Minimum Maximum Mean
Deviation
Research Model FP 2.40 4.60 3.46 0.53
PAR 2.60 4.40 3.64 0.32
The independent variable is accounting records keeping
practices, which is measured by using preparation of financial PFS 2.60 4.40 3.60 0.42
statements, preparation of accounting records, use of CU 2.40 4.40 3.27 0.36
computers, and the perception of respondents, and the RP 2.40 4.00 3.41 0.32
dependent variables is financial performance of SMEs. The
algebraic expression of the regression model, which consists Source: SPSS Output (2021)
of a constant coefficient and an error term, takes the following According to table 2, the mean value of the financial
form. performance is 3.46. Standard deviation is 0.53 and it
Y = α + β1X1 + β2X2 + β3X3 + β4X4+ ẹ represents that mean value of the financial performance can be
deviate by 0.53. Among financial record keeping practices,
Where, preparing accounting records and preparing financial
Y = Financial performance statements represents 3.64 and 3.60 mean values respectively.
X1 = Preparing accounting records Mean values of computer utilization and respondents’
X2 = Preparing financial statements perception is 3.27 and 3.41 respectively. All mean values are
X3 = Computer utilization higher than the median value. It indicates that SMEs almost
X4 = Respondents’ perception agree with accounting record keeping practices considered in
α = Constant term this study.
β1 to β4 = Beta coefficients Correlation Analysis
ẹ = Error term
Table 3: Results of Correlation Analysis
V. DATA ANALYSIS AND DISCUSSION OF RESULTS RP
FP PAR PFS CU
M
Response Rate
Corr. 1
Sample size of the study was 217 SMEs operate in FP
Sig.
Anuradhapura District during the year 2021. 217
Corr. 0.181** 1
questionnaires were distributed among manufacturing, service PAR
and trade type of SMEs located in Anuradhapura area. Sig. 0.008
However, due to the non-responsiveness and incompleteness Corr. 0.527** 0.381** 1
PFS
43 and 22 questionnaires were excluded respectively from the Sig. 0.000 0.000
analysis. Therefore, the sample for the study was adjusted to Corr. 0.465** 0.110 0.696** 1
152. Accordingly, 70% of response rate was recorded for the CU
Sig. 0.000 0.106 0.000
present study.
Corr. 0.466** 0.206** 0.715** 0.687 ** 1
Reliability Test RP
Sig. 0.000 0.002 0.000 0.000
According to table 1 reliability test results at final data **. Correlation is significant at the 0.01 level (2-tailed).
analyzing stage on each variables are higher than 0.7. Thus,
internal consistency of the measures used in this study can be Source: SPSS Output (2021)
considered to be acceptable for accounting record keeping According to table 3, there is a significant positive
practices and SMEs performance measures. relationship between accounting records keeping practices and
Table 1: Results of the Reliability Test financial performance at 0.01 significant levels. PAR has a
positive 0.181 relationship with financial performance at 0.01
Number of
Variables Cronbach's Alpha
Questions level of significant. PFS, CU and RPM have positive
PAR 0.729 5
relationship with FP as 0.527, 0.465 and 0.466 respectively at

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the 0.01 level of significant. population of the study was 500 SMEs registered in Chamber
of Commerce, Anuradhapura and 217 selected as the sample,
Multiple Regression Analysis
but final sample was 152 SMEs operating in Anuradhapura
Multiple regression analysis used to identify the effect of District. Data were collected from SMEs using a standard
accounting record keeping practices on SMEs financial questionnaire and collected data was analyzed using SPSS
performance. software package. Research hypotheses were tested based on
Table 4: Results of Regression Analysis
regression results.
Table 5: Testing of Hypotheses
Unstandardized Standardized
t Sig.
Coefficients Coefficients Regression Accepted/Rej
Std. Hypotheses
B Beta Results ected
Error H1: There is a significant effect of
(Constant) 0.468 0.452 1.035 1.035 0.302 preparing accounting records on B= 0.022
Rejected
financial performance of SMEs. Sig= 0.833
PAR 0.022 0.104 0.211 0.211 0.833
PFS 0.411 0.123 3.349 3.349 0.001 H2: There is a significant effect of
preparing financial statements on B= 0.411
Accepted
CU 0.216 0.128 1.682 1.682 0.094 financial performance of SMEs. Sig= 0.001
RPM 0.215 0.148 1.451 1.451 0.148
H3: There is a significant effect of
F 23.074 R 0.551a computer utilization on financial B= 0.216
Rejected
performance of SMEs. Sig= 0.094
Sig 0.000 R Square 0.303
H4: There is a significant effect of
Source: SPSS Output (2021) respondents’ perception on financial B= 0.215
Rejected
performance of SMEs. Sig= 0.148
According to table 4, R squire value is 30.3 percent and it
implies that 30.3 percent variation in the financial
performance is explained by independent variables (Preparing According to the table five hypotheses were tested based on
accounting records, Preparing financial statements, Computer regression results and rejected all hypotheses except
utilization , Respondents’ perception) considered in this study. hypotheses number two. According to the findings, there is a
The F value in the ANOVA table tests whether the overall significant effect of preparing financial statements on
regression model is a good fit for the data. The table 4 shows financial performance of SMEs. Other accounting record
that all the independent variables statistically and significantly keeping practices such as preparing accounting records,
predict the dependent variable as the F value is 23.074 and computer utilization and respondents’ perception has a
significant value is 0.000 which is lower than 0.05 levels of positive effect on financial performance but they have not
significance. So, it implies that regression model fits to the significant effect on financial performance.
data. According to regression coefficients, there is a positive VII. RECOMMENDATION AND SUGGESTIONS FOR FUTURE
(B= 0.022) effect of PAR on Financial performance, but it is RESEARCH
not significant (Sig. = 0.833) at 0.05 level of significant. So,
there is no significant effect of PAR on FP. Regression This study examines the effect of accounting record keeping
coefficient of PFS is positive 0.41.1 so, there is a there is a practices on financial performance of SMEs in Sri Lanka.
positive effect of PFS on Financial performance. On the other According to research findings, it was identified there is a
hand the significant value is 0.001, it is significant at 0.05 significant positive relationship between preparing financial
level of significant. Tis finding is confirmed by Auken & statements on financial performance. So, Sri Lankan SMEs
Carrahe (2013), Madurapperuma et al (2016), they confirm should keep more attention on preparing financial statements
that most SMEs prepare a complete set of financial statements when they are engaging in day to day operating activities. So,
with preparing financial statement at all. So, there is a positive SMEs owners, managers and other parties engaging in
significant effect of PFS on FP at 0.05 level of significant. CU accounting activities should pay their attention on establishing
has a positive (B=0.216) effect on FP, but it is not significant and practicing proper record keeping practices in the business.
(Sig=0.094). RPM has a positive (B=0.215) effect on FP but it In addition to preparing financial statements other variable
is not significant (Sig: 0.148) at 0.05 level of significant. shows a positive relationship with financial performance of
SMEs. So, SMEs should have thorough knowledge regarding
VI. CONCLUSION what are the account record keeping practices available, how
The study was carried out to investigate the effect of to adopt them in to the SME, how to practice those practices.
accounting record keeping practices on financial performance So, SME owners, managers, accountants, cash officers and
of SMEs. Preparing accounting records, preparing financial other relevant parties should gather knowledge relating to
statements, computer utilization, and respondents’ perception accounting record keeping practices in order to enhance their
were identified as independent variables and financial business performance. Moreover, the study recommends that
performance was identified as the dependent variable. The regulatory authorities like Industry Development Board,

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Chamber of Commerce, Department of Small Industries, [14] Karunananda, U., & Jayamaha, A. (2011). Associations of
Financial Practices and Performance of Small and Medium -sized
Ministry of Industry, Tourism and Investment Promotion,
Enterprises in Sri Lanka. Journal of Management 1(1) 2011, 1-21.
National Enterprise Development Authority…etc should [15] Liao , T., & Rice, J. (2010). Innovation investments, market
encourage SMEs to setup a sound accounting systems by engagement and financial performance:A study among Australian
giving knowledge on relevant practices organizing workshops, manufacturing SMEs. T.-S. Liao, J. Rice / Research Policy 39
(2010), 117–125.
seminars, appointing knowledge disseminating groups…etc,
[16] Madurapperuma, M. W., Thilakerathne, P. M., & Manawadu, I. N.
on accounting record keeping practices for a better (2016). Accounting Record Keeping Practices in Small and
performance of SMEs. In addition to that Sri Lankan Medium Sized Enterprise’s (SME’s) in Sri Lanka. Journal of
government should take necessary actions for enhancing the Finance and Accounting , 188- 192.
[17] Rathnasiri, U. (2014). Financial reporting practices of small and
adaptability accounting recordkeeping practices in SMEs
medium enterprises (smes) in sri lanka. International Journal of
introducing new standards, specifications, laws, rules and Academic Research in Business and Social Sciences 4, 73-83.
regulations. Finally, researcher recommends that Sri Lankan [18] Raymond , A. E., Emmanuel, E., & Moses, C. O. (2014). The
SMEs should get the employment of accounting experts to Relevance of Accounting Records in Small Scale Business: The
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