EFFECT OF ACCOUNTING PRACTICES ON ACCESS TO FINANCIAL CREDIT BY SMALL AND MEDIUM ENTERPRISES OWNERS IN KENYA: A SURVEY OF SMEs IN KISUMU CITY CENTRAL BUSINESS DISTRICT

Abstract

Credit availability is a significant component in the development of SMEs in Kenya. Current SMEs and potential operators noted that access to funds is a significant impediment to business development and start-ups therefore the study sought to ascertain the effect of accounting practices on access to financial credit by small and medium enterprises owners in Kisumu City Central Business District. The specific objectives were to; examine the effect of costing, budgeting, and recording practices on access to financial credit among SMEs in Kisumu City CBD. The study was anchored on Accrual basis theory, full disclosure theory and revenue recognition theory. It targeted 390 registered SMEs in Kisumu City CBD. The study adopted Nassiuma’s (2000) formula to get a sample size of 86. Additionally, the study used simple stratified random sampling and purposive sampling to determine the sample size from each SME. It collected primary data using structured and unstructured questionnaire. The pilot test was conducted in Kisii town where 9 questionnaires were distributed to 9 finance officers. The content validity of the research instruments was determined by seeking expert’s opinions from research supervisors. Reliability was determined by assessing the Cronbach at 0.7. From the findings the Cronbach alpha was above the acceptable threshold of 0.7. The study gathered both quantitative and qualitative data which was analyzed using both descriptive and inferential statistics. In descriptive statistics, percentages, frequencies, measures of central tendency (mean), and measures of dispersion were all employed. Inferential statistics was performed using Pearson's correlation coefficient and multiple regressions. The result of analyzed quantitative data was presented in form of tables and charts. Concerning the effect of costing practice on access to financial credit among SMEs in Kisumu City CBD the study revealed that there was a strong positive and significant relationship between costing practice and access to financial credit among SMEs in Kisumu City CBD (r = .641, P=0.000). On the effect of budgeting practice on access to financial credit among SMEs in Kisumu City CBD the study revealed that there was a strong positive and significant relationship between budgeting practices and access to financial credit among SMEs in Kisumu City CBD (r=0.619 and P=0.023). Regarding the effect of recording practices on access to financial credit among SMEs in Kisumu City CBD the study concluded that there was a strong, positive and significant relationship between recording practices and access to financial credit among SMEs in Kisumu City CBD (r=0.597, P=0.018). From the findings the study concluded that there was a strong positive and significant relationship between costing practice and access to financial credit by SMEs in Kisumu City CBD. In addition, the study concluded that there was a strong positive and significant relationship between budgeting practices and access to financial credit by SMEs in Kisumu City CBD. Finally, the study concluded that there was a strong, positive and significant relationship between recording practices and access to financial credit by SMEs in Kisumu City CBD. The study recommended that SMEs owners in Kisumu City CBD should implement robust cost management strategies to optimize operational and overhead costs, regular reviews and cost-saving initiatives. Moreover, budgeting techniques should be utilized to achieve specific purposes and grand goal of the enterprise.