An investigation into the use and effectiveness of management accounts and financial statements in decision making of SMEs in Harare
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The majority of SMEs in Harare are not able to obtain loans from financing institutions because they do not provide management accounts or financial statements. Some are being charged by Zimbabwe Revenue Authority for late submission of tax return forms in time as they spend more time computing taxable income figures. Therefore the study sought to find out how SMEs in Harare prepare and use management accounts and financial statements and also how effective these management tools are to the decision making in these SMEs. The study also sought to explore problems mostly caused by keeping inaccurate and improper accounting records. A descriptive survey method was used where questionnaires were administered to 40 SMEs out of a total population of 80 SMEs in Harare in four economic sectors which are; wholesaling, trading, carpentry and tailoring. The sample was composed of 10 firms from each economic sector. Data was analysed and presented using tables and graphs. It was found from the research that the majority of SMEs in Harare rely on external accountants on preparation of financial statements. The majority of SMEs that prepare reports internally use Manual Accounting Information System. In addition almost half of the responding firms do not use financial statements in making investment decisions in their businesses. Government, banks, investors and employees were found to be the most interested stakeholders in SMEs financial reports. Results obtained also indicate that firms which maintain poor quality accounts face problems of not accessing bank loans, charges by tax authorities, high interest charges by banks and high fee charges by consultants. In conclusion findings suggest that SMEs in Harare are still not aware of the importance of preparing and using management accounts and financial statements in decision making. The problems faced by SMEs in Harare are a result of little or no use of management accounts and financial statements by SMEs. In the light of the above conclusions, it is recommended that SMEs in Harare should take the practice of preparing both management accounts and financial statements seriously. They should do it not only to fulfil the needs of government and banks but also for the requirements of an effective business accounting system.