Abstract:
Small and Medium enterprise can’t be ignored throughout the economic and social
world because of the Small and Medium (SME) sector provides more contribution to
Gross Domestic Product (GDP) and significant percentage has taken by SME sector
in the Sri Lankan economy and also it is very much important for solving
unemployment problem of the country. It is important to study how affect formal
Accounting systems effect on the survival and growth of SMEs. Therefore, this study
aims to identify what are the factors affect to the formal Accounting System in SME’s
in Sri Lanka. So, Financial Accounting Practices, Skills of Financial Accountant,
Business Life Cycle, External Pressure and Capacity Argument are considered by the
study as independent variables of the study that affect to the adoption formal
accounting system for the SME’s.
The study used Primary data of 60 Small and Medium Enterprises located in
Kurunegala District. A well-structured questionnaire was used to collect data from
the respondents of the study. Descriptive statistics and Correlation analysis were
applied using SPSS software. The Results of the study revealed that there is a positive
relationship between formal Accounting System and SME’s Financial Accounting
Practices, Skills of Financial Accountants and External Pressure
