ABSTRACT

Accounting practices play a critical role in shaping the financial performance and profitability of small and medium-sized enterprises (SMEs) in the Buea Municipality, Cameroon. This study investigates the impact of accounting practices on SME profitability, examining how factors such as financial record-keeping, budgeting, cost control, and financial analysis influence the bottom line of SMEs operating in Buea. Using a mixed-methods approach, quantitative data from financial statements and qualitative insights from interviews with SME owners and managers are analyzed to understand the relationship between accounting practices and profitability. The findings highlight the importance of adopting sound accounting practices, including the use of accounting software, regular financial reporting, and strategic financial planning, in enhancing SME profitability and sustainability. Moreover, the study explores the challenges faced by SMEs in implementing effective accounting practices and identifies opportunities for capacity building and support to improve financial management capabilities. By shedding light on the link between accounting practices and SME profitability in Buea, this research contributes to the literature on SME finance and provides valuable insights for policymakers, business support organizations, and SME owners seeking to enhance financial performance.

Keywords: Accounting practices, Small and medium-sized enterprises (SMEs), Profitability, Financial performance, Buea Municipality.

Chapter One: Introduction

1.1 Background of the Study

The Dictionary for Accounting terms defines accounting practices as normal practical applications of accounting and/or auditing practices that occur within a business. A firm’s accounting practice refers to the method by which its accounting policies are implemented and adhered to on a routine basis. It is the day to day implementation of the accounting policies of an organization, the system of procedures and controls that an accounting department uses to create and record business transactions. Accounting practice should ideally be extremely consistent since there are a large number of business transactions that must be dealt with in exactly the same manner in order to produce consistently reliable financial statements.  Also, according to Warren and Fees accounting is an information system that communicates economic information for the use by group and individuals in making inform decisions and judgments. For example, investors using firms accounting information or status in determining the firm with great potentials to enable them invest effectively, creditors seek information useful in appraising the financial soundness of the business organization and assessing the risk involve before granting credits. Accounting has also been defined by Larson Wild Chiappetta as an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities. hat is important to the evaluation and monitoring of the firm’s economic activities.

The success or failure of any business depends on keeping accurate and timely accounting information to give a clear financial business image (Ankrah, Mensah & Ofori-Atta, 2015). However, prior research reported that most SMEs did not keep complete records of accounts assigning several reasons. For example, a study by Maseko & Manyani (2011) established that most SMEs did not keep complete records of accounts due to a lack of knowledge in accounting and the cost of engaging professional accountants. Consequently, the use of accounting information to support measurement of financial performance by SMEs was ineffective.

Evidence from literature reveals that there is no universally agreed definition of SMEs across all academic disciplines. This is so because no single definition can capture all the dimensions of a small and medium-sized entity, nor can it be expected to reflect the differences between entities in different industrial sectors or countries at different levels of development. Most definitions are however based on size and they use fundamental bases such as several employees, financial position, or annual turnover (Indie et al., 2008). However, none of these bases are pegged at the same level across disciplines and national boundaries (Holt, 2008). In virtually every jurisdiction, from the largest economies to the smallest, over 99% of companies have fewer than 50 employees.

Usually, most SME definitions are based on the role they play in a country economy,
policies and programs which are designed by particular agencies or institutions empowered to develop SMEs. For instance, a small business in the developed economies of countries like Japan, Germany and United States of America (USA), may be a medium or large-scaled business in a developing economy like Nigeria. Moreover, the definition of SME also varies overtime from one agencies or developing institutions to the other, depending on their policy focus (Etuk, Etuk & Baghebo, 2014).

There is no universally accepted definition of Small and Medium Enterprises (SMEs). This is due to the fact there are a large number of micro, small and medium enterprises which differ in their sector of operation, activities and in the environment where they develop. Most definitions of Small and Medium Enterprises (SME) include ranges of assets or turnover per year and the number of employees. Usually, the definition follows one or more of the following approaches: Criterion approach, Institutional approach, and Typological approach.

In Cameroon, the official definition of SME is based on the first two approaches identified earlier viz: the criterion and the institutional approach. Thus, in the country, there are four main definitions of SME. These definitions are given by the investment law, FOGAPE BEAC and the economic and social concern;

According to the investment code (“decree no 90/007 of the 08/11/1990”), an enterprise is considered as SME if:  At least 35 percent of its share (at least) is owned by Cameroonian(s), Investment is less than or equal to 1, 5 billion FCFA”.

According to FOGAPE (“decree no 84/510 of the 13 June 1984”), an enterprise is considered as SME if: If 51 % of the capital turnover is owned by and the manager is/are Cameroonian(s), If the capital turnover is less than or equal to 1 billion FCFA per year, If the total investment is more than 500 million FCFA per year, If the short term credit is less than 200 million FCFA.

According to BEAC (“decree no 71/MINFI/DCE/D of the 16/06/1989”), an SME is an enterprise where: The majority of the capital turnover owned by and the manager is Cameroonian, Own participation is less than 100 million FCAF, the total credit is less than 100 million FCFA

The economic and social concern however gives a more explicit definition. According to the latter:

A small enterprise is an enterprise with: The majority of share is owned by a Cameroonian, the majority of managers are Cameroonians, Limited income, employing less than 10 persons, the total investment is less than or equal to 20 million FCFA.

A medium enterprise is an enterprise with A capital turnover is less than or equal to 1, 5 billion FCFA, Number of employees is between 10 and 100, Capital turnover is less than or equal to 1, 5 billion FCFA, Own participation is less than or equal to 100 million FCFA. 

Scope of the Study

The scope of this study would cover small and medium-sized enterprises dispersed around the Kumba municipality southwest region of Cameroon.

The study would cover a selected sample size of small and medium-sized enterprises in the kumba municipality southwest region of Cameroon, this research has then limited the study to the effect of financial accounting practices on the growth of small and medium-sized enterprises Buea municipality.

1.6 Significance of the Study

To the SMEs

The finding of this study is going to Improve the management of the businesses in Kumba and Cameroon in general. SMEs owners will know the importance of keeping financial records as they will be able to maintain the transactions, daily stock-taking made and find out whether there is profit or loss. Know how to manage their finances, profits and losses, obtain knowledge on business management.

Also, the finding of this study will go a long way in assisting owners of SMEs in tax declaration, this is because financial information will be made available and make the work tax agent or collector easier.

To the government

Finding of this study can be of great used to the government since the result of this study can be used by tax officials in tax declaration.

To the accountants

Result from the finding of the study is going to save a reference to accountants which will also contribute to management and preparation of financial statement of SMEs in Kumba in particular and Cameroon in genera.

To Scholars and Researchers

This study would further help scholars and university students to understand the procedures of financial accounting practices as well as providing research guidelines for obtaining data to support a claim to their research. Also, the University may put a special course on entrepreneurship concerning record keeping as compulsory subject so the students may become competent entrepreneurs in the future.

1.7 Limitations

Time was one of the limitation of this since the time to carry out the study was too short for the research to carried out the study of this nature. Thus was only carried out within a period not up to a month.

Pecuniary was another limitation, since studies of this nature require a reasonable sum of money for internet, printing and transportation expenses which were sometime difficult for the researcher to come by

And lastly but not the least, Anglophone crisis in the northwest and southwest region was also one of the limitation to this study since there were a series of locked downs which made it difficult for their researcher to carried out her study especially leaving Buea to Kumba. 

1.8 Organization of the Study

The study is organized into five major chapters. The first part is the introductory part composed of the background of the study, research problem and questions, Research Objectives, Significance of the Study, Scope of the study, definition of terms and organization of the study. The second chapter deals with Review of Related Literature, in the third chapter research design and Methodology, The fourth chapter about data analysis and discussion and in the fifth chapter summary of findings, conclusions and recommendations.