The Accounting Practice of Small and Medium Sized Enterprises and Its Effect on Access to Finance: A Case Study of Arba Minch Town, Southern Region, Ethiopia

In developing countries, small and medium enterprises (SMEs) have a vibrant role and serve as engines through which the growth objectives of developing countries can be achieved. The SME sector has been instrumental in bringing about economic transition by providing goods and services, which are of adequate quality and are reasonably priced, to a large number of people, and by effectively using the skills and talents of a large number of people without requiring high level training, large sums of capital or complicated technology. However access to finance remains to be a major problem hampering SMEs from playing their productive role in the economy. Accounting is also basically defined as the process of recording economic information in a significant manner in order to measure the performance of a firm. Accounting practices consist of the methods and records established by management to identify, assemble, analyze, classify, record and report a company’s transactions and to provide assurance that the objectives of internal control are being met. In Ethiopia one of the main problems of SMEs’ may be their access to finance and not practicing formal accounting system. This study was conducted to examine the accounting practice of small and medium sized enterprises and its effect on access to finance in the case of Arba Minch town. For this study different literatures were reviewed and both primary and secondary data were collected from different sources. For the achievement of the objective of the study both research approach particularly survey design was used and the data analyzed using descriptive statistics and multiple regression models. The government in collaboration with financial institutions should therefore work to solve this problem. Keywords: Access to finance, Age of the business, Accounting practice, Collateral DOI: 10.7176/EJBM/11-28-04 Publication date:October 31st 201