CHAPTER ONE

INTRODUCTION

1.1.          BACKGROUND TO THE STUDY

The Small and medium scale enterprises  sector has been recognized worldwide for its role in economic advancement through ways various like; wealth generation, employment creation, and poverty reduction (Kithae, Gakure, & Munyao, 2012). Small and medium scale enterprises are a fundamental part of the economic fabric in most developing countries, and they play a very important role in furthering growth, innovation and prosperity. Although smaller in size, they are the most important enterprises in the economy due to the fact that when all the individual effects are aggregated, they surpass that of the larger companies. The social and economic advantages of small and medium scale enterprises cannot be overstated.

 SMEs are defined as non- subsidiary, independent firms which employ less than a given number of employees, this number varies across national systems, other parameters other than the number of employees are used in categorizing businesses as SMEs.

As per the time of the new millennium SMES accounted for 95% of firms and 60-70% of employment creation in majority countries in the world (OECD, 2000). Small and Medium Scale Enterprises are mostly found in the service sector of various economies which in most countries account for two-thirds of employment levels. Being highly innovative, they lead to the utilization of our natural resources which in turn translates to increasing the country’s wealth through higher productivity. Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas (Ariyo, 2005).

Accounting techniques serves as a critical tool for recording, analyzing, monitoring and evaluating the financial condition of organizations, preparation of documents necessary for tax purposes, providing information support to many other organizational functions, (Amidu et al., 2011). In the context of SMEs, accounting techniques is important as it can help the firms manage their short-term problems in critical areas like costing, expenditure and cashflow, by providing information to support monitoring and control.

Many small business owners are daunted by the mere idea of accounting techniques and bookkeeping. But in reality, both are pretty simple. Keep in mind that bookkeeping and accounting techniques shares two basic goals: to keep track of income and expenses, which improves chances of making a profit, and to collect the financial information necessary for filing various tax returns. There is no