Influence of Book-Keeping Practices on Financial Performance of Micro Enterprises (MEs) in Informal Settlements of Kisumu City, Kenya

Collins Amimo Lumumba and Dr. Fredric Aila
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Collins Amimo Lumumba: Maseno University, Kenya
Dr. Fredric Aila: Maseno University, Kenya

International Journal of Research and Innovation in Social Science, 2022, vol. 6, issue 11, 439-447

Abstract: Book keeping practices including the maintenance of sales and purchases books, cash/bank reconciliation practices, and maintenance of cash book among others, are financial control mechanisms relevant for enhancing business performance. However, while Micro Enterprises (MEs) constitute over 80% of total small enterprises across the globe, their rates of failure is also high (at 50 – 70%). In Kisumu city of Kenya where over 60% of the total inhabitants reside in informal settlements served by micro enterprises, over 70% of them collapsed within under 4 years in operation. This questions the effectiveness of book keeping practices in this circumstance. This paper explores the influence book keeping practices on the performance of MEs in informal settlements of Kisumu City, Kenya. Specific objectives were to explore the influences of sales and purchases books, cash/bank reconciliation practices, and maintenance of cash book on performance of MEs in the area. Decision usefulness theory was used to guide the study. Correlational research design was adopted on 360 sampled traders from 3660 targeted traders through Yamane’s formula, from whom primary data was collected via structured questionnaire. Regressions analysis was used to compare the relationship between book keeping practices and financial performance of MEs. The study found that book-keeping practices: maintenance of cashbooks (r=0.431), sales/purchases books (r=0.504) and bank reconciliation (r=0.491) have significant relationship with financial performance of MEs in the informal settlements. Cumulatively, approximately 46.9% of financial performance of MEs is attributed to the book-keeping practices under study. It is therefore concluded that with the enhanced book keeping practices, the MEs operating in informal settlements would gain adequate capital to remain solvent over time.

Date: 2022
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