IMPACT OF ACCOUNTING PRACTICES ON FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN TANZANIA

Abstract

The financial performance of small and medium enterprises (SMEs) is a critical factor for economic development and job creation, particularly in emerging economies like Tanzania. However, many SMEs struggle with ineffective financial management practices, which can hinder their growth and sustainability. Hence, the study assessed the impact of accounting practices on the financial performance of SMEs in Arusha, Tanzania. Specifically, the study aimed to examine the impact of internal control practices on the financial performance of SMEs; to determine the impact of budgeting practices on the financial performance of SMEs; and to analyse the impact of record-keeping practices on the financial performance of SMEs. The study used positivist or positivism (quantitative) paradigms. The study used a correlational research design. This study employed a quantitative approach. A simple random sampling technique was used to select a sample size of 344 SMEs from a population of 2,474 SMEs in Arusha District. The study used closed ended questionnaires for data collection. Also, the study used a quantitative analysis including a descriptive analysis and an inferential analysis. The descriptive analysis presented data in tables and charts in the form of frequencies and percentages, while the inferential analysis included multiple regression analysis. Results reveal that internal control practices, budgeting practices, and record-keeping practices are positive and statistically significant at p-values of 0.004, 0.001, and 0.001, respectively. Therefore, the study concludes that internal control practices, budgeting practices, and record-keeping practices have a significant positive impact on the financial performance of SMEs. SMEs should focus on strengthening their internal control systems, as effective practices in this area are closely linked to improved financial performance. Additionally, organized record-keeping is essential, with SMEs advised to adopt accounting software for accuracy and conduct regular audits, supported by training on best practices for employees. Finally, the study emphasizes the importance of comprehensive budgeting strategies, encouraging business owners to view budgeting as vital for financial forecasting and resource allocation, rather than just a routine task. Keywords: Accounting Practices, and Financial Performance