The accounting and financial model from the perspective of micro, small, medium enterprises: does the concepts of knowledge really matter?

Abstract

This paper explores the financial and accounting model in Micro Small Medium Enterprises (MSMEs) located in East Java Indonesia. The growing number of MSMEs has failed to meet good standard in business management. Data shows that 15% of MSMEs in Indonesia had good performance while others were categorized in stagnant and lower performance (Statistik Department Koperasi dan UKM Jatim, 2016). The common cause of MSME failure is the lack of managerial skill and experience (Maes et. al, 2014); the lack of entrepreneurial orientation and strategic planning practices (O’Rogan, 2002; Coleman, 2007). The condition relates to financial management that becomes core problem as there have been numerous entrepreneurs exclude recording of accounting transaction in business process to make decision. Accordingly, this study aims to observe a whole picture of financial recording and reporting in decision-making which would be based on qualitative method allied with the use of interviews with owners of MSMEs in Malang, Tulungagung and Banyuwangi. The result of the study showed that the determinant of products/services’ price exclude costs component but MSMEs still achieve high profit. Additionally, the entrepreneurs of MSMEs consider profit as: a) cash balance to make investment in land and building; b) cash balance for travelling; c) cash balance to purchase business equipment and personal belonging; d) cash balance to finance family studies.Other findings also reveal that MSMEs still have outstanding performance and are able to obtain Bank credit without Financial Statement produced

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