Adoption of Accounting and Financial Management Practices among SMEs in Uttar Pradesh (India)

Abstract

Accounting is the backbone of the business world. After all, accounting was created in response to the development of trade and commerce. The concepts of assets, liabilities, and income and the need to reconcile these areas is still the basis for all accounting functions today. Accounting gives us the financial snapshot of the business in order to make solid decisions about the current status or projected future health of business. One of the factors that determine the performance of business organizations is effective use of accounting and financial management reports. However, the applications of these techniques are limited in Small and Medium Enterprises (SMEs) in India. This study aims to examine the accounting and financial management practices among SMEs in Uttar-Pradesh of India and to investigate perceived usefulness of these practices for their decision making. A survey was carried out on SMEs in the manufacturing sector listed by SME Directorate of Uttar Pradesh State. A random sample of 76 SMEs was interviewed with a well structured pre-tested questionnaire for the present study. The findings from the survey provided useful insights about the current accounting and financial management practices and the level of apparent usefulness of the accounting reports among SMEs. Overall, the study concludes that there is a wide gap between theory of accounting and financial management and actual practices by the manufacturing SMEs in U.P. While exploratory nature of the study does not allow its results to be generalized, but it suggests the need for further theory development in the field of accounting and financial management for SMEs.