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CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

It is well known that accounting practices can improve a company's

financial performance in both domestic and foreign markets. Effective

accounting practices are the basis of sound financial management

everywhere in the world, contributing significantly to the expansion and

sustainability of businesses of all sizes (Otoo, 2024). Strong accounting

systems can have a major impact on a company's operational efficiency

and overall profitability, especially for microbusinesses, which frequently

have limited infrastructure and resources (Najera Ruiz & Collazzo, 2021).

In the Philippine setting, the importance of proper accounting is

underscored by policies from the Department of Trade and Industry (DTI),

which mandate that even small enterprises adhere to basic accounting

standards to enhance transparency and financial accountability (Reid,

2023). Despite these mandates, many micro businesses in regions like

Barangay Poblacion, Malita, Davao Occidental, continue to struggle with

inadequate accounting practices, which can hinder their financial

performance and growth prospects. Studies indicate that local

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entrepreneurs often lack the necessary knowledge and skills in effective

accounting practices, leading to mismanagement of funds and ultimately

diminishing their potential for success (Ibarra & Velasco, 2015).

The purpose of this thesis is to investigate how accounting practices

affect the bottom line of microbusinesses, particularly those in Barangay

Poblacion, Malita, Davao Occidental. The goal of this research is to gather

important information that can guide local policy and support systems

targeted at boosting the capacity of micro enterprises in the area.

Specifically, the research will look at how much these businesses use

accounting practices and analyze the relationship between these practices

and their financial results. The findings are expected to contribute to the

body of knowledge surrounding micro business management while

promoting a clearer awareness of how efficient accounting methods may

lead to improved financial performance at the community level (Pagaddut,

2021).

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Objectives of the Study

This study will be conducted to determine the impact of

accounting practices on the financial performance of micro

businesses in Barangay Poblacion, Malita, Davao Occidental.

Further, this study aims to:

1. To determine the accounting practices of the selected micro

enterprises in Barangay Poblacion, Malita, Davao Occidentental in terms

of:

1.1 Budgeting Practices

1.2 Performance evaluation Practices

1.3 Costing Practices

2. To determine the financial performance of the selected micro

enterprises in Barangay Poblacion, Malita, Davao Occidentental in terms

of:

2.1 Profit

2.3 Sales
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2.4 Cash flow

3. To determine the impact of accounting practices on the financial

performance of micro businesses in Barangay Poblacion, Malita,

Davao Occidental.

Significance of the Study

This study may contribute benefits to the following:

Local Government Unit

The results of this study will be used to create policies and initiatives

that support small enterprises, fostering regional economic development.

The results can also be used to pinpoint areas in which local government

units (LGUs) might support these enterprises, such as through financial

assistance, regulatory changes, or training and capacity-building initiatives.

By doing this, local government units (LGUs) can improve the business

climate and encourage economic growth, job creation, and

entrepreneurship.
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Entrepreneurs

The results of this study are crucial for accounting professionals in

the business world to improve their understanding of and capacity for

monitoring the stability and financial health of microbusinesses. Business

owners could not assess their financial situation or determine whether

their company is profitable without the assistance of an accountant.

Business Employees

The results of this study are crucial in determining the

microbusinesses' financial stability, sales volume, and performance in

order to assess job security, future pay prospects, retirement benefits,

and employment prospects.

Future Researchers

The body of information and comprehension on accounting

procedures will grow as a result of this study. This will assist in identifying

the study's claims and gaps as well as potential additional variables that

could have a big impact on microbusiness financial performance.

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Scope and Limitation of the Study

The study`s main focus is to determine the impact of

accounting practices on the financial performance of micro

businesses in Barangay Poblacion, Malita, Davao Occidental.

The study will utilize an adapted survey questionnaire from

Ashfaq et.al (2014) and Ahmad and Jamil (2020) to gather data

on the accounting practices and financial performance of

selected micro businesses in Poblacion, Malita, specifically those

in the servicing sector. Survey questionnaire for accounting

practices will include the indicators budgeting practices,

performance evaluation practices, and costing practices. For the

survey questionnaire of financial performance, it will include

indicators profit, sales, and cash flow.

This study will employ a descriptive correlational research

design and a complete enumeration technique. The respondents

of this study will be selected and extracted from the list of

registered micro businesses from the data of BPLO Malita.

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Definition of Terms

For clarification, the important terms that will be used in the study will

be defined in both theoritical and operational. This is to clarify how the

words are applied in the proposed research.

Accounting practices. The body of information and comprehension on

accounting practices will grow as a result of this study. This will assist in

identifying the study's claims and gaps as well as potential additional

variables that could have a big impact on microbusiness financial

performance.

Budgeting practices. Budgeting is a systematic process of planning

future operations by forecasting revenues and expenses. For

microbusinesses in Poblacion, Malita, Davao Occidental, this can be

operationalized by assessing the frequency of budget creation, the level

of detail, the use of tools, and adherence to the budget.

Costing practices. Costing is the process of determining the cost of a

product or service. In this study, it is use to determine the cost of

products or services, which can be evaluated by examining the methods

used, accuracy of records, frequency of analysis, and the use of cost

information in decision-making.
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Cash flow. It refers to the net amount of cash being transferred into

and out of a business. In this study, cash flow is an indicator of financial

peroformance among micro businesses.

examining the use of DSS can provide insights into how micro businesses

make informed decisions based on financial data.

Financial performance. It refers to the measure of a firm's

profitability, revenue generation, and overall financial health over a

specific period. In this study, it aims to correlate accounting practices

with financial performance indicators among micro enterprises, assessing

their impact on profitability

Performance evaluation practices. Performance evaluation is the

process of assessing the efficiency and effectiveness of a business's

operations. In this study, it is will be used to assess the efficiency and

effectiveness of operations, and can be measured by the frequency of

reviews, the use of key performance indicators, the methods of financial

analysis, and the utilization of evaluation information for strategic

decisions.

Profit. It refers to the financial gain obtained when total revenues exceed

total expenses. It is a key indicator of business success. In this study, the

researchers will analyze profit levels among micro enterprises to

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understand how accounting practices contribute to their financial

outcomes.

Sales. It refers to the total revenue generated from selling goods or

services. It is a critical component of business income. In this study,

sales figures will be evaluated as part of assessing overall financial

performance among micro businesses

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CHAPTER II

REVIEW OF RELATED LITERATURE

Accounting Practices

The field of accounting has undergone significant transformations in

recent years, driven by advancements in technology, evolving

management practices, and changing societal expectations.

Recent literature emphasizes the importance of theoretical

frameworks in understanding accounting practices. Conteh (2024) states

that financial accounting theories serve as foundational elements that

guide the development of accounting rules and practices. This aligns with

Major and Clegg (2020) assertion that accounting can be analyzed

through various theoretical paradigms, including sociological and

organizational theories, which provide deeper insights into the

complexities of accounting practices. The integration of these frameworks

helps bridge the gap between theory and practice, allowing for a more

nuanced understanding of how accounting operates within different

contexts.

Management accounting practices have been shown to significantly

influence organizational performance. Subedi (2022) highlights the role of

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management accounting systems in cooperatives in Nepal, demonstrating

a positive relationship between these systems and organizational

performance. Similarly, Dahal (2022) argues that effective management

accounting techniques are crucial for organizations to navigate

competitive challenges and enhance performance. These findings suggest

that the adoption of robust management accounting practices is essential

for organizations aiming to achieve strategic goals.

The advent of technologies such as blockchain has prompted a

reevaluation of accounting practices and education. Novak (2022) explore

the implications of blockchain technology for accounting, emphasizing its

potential to enhance transparency and efficiency in accounting processes.

This technological shift necessitates a corresponding evolution in

accounting education, as future accountants must be equipped with the

skills to leverage these technologies effectively. Wang (2021) further

supports this notion, arguing that emerging technologies require

accountants to develop not only technical skills but also business acumen

to interpret data meaningfully.

Cultural dimensions significantly shape accounting practices, as

evidenced by Nanayakkara and Silva's study on Sri Lankan accounting

professionals (Nanayakkara & Silva, 2021). Their research indicates that

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cultural values influence accounting practices and the perceptions of

accounting professionals, highlighting the need for culturally sensitive

approaches in accounting education and practice. This perspective is

echoed in the work of Fukofuka et al. (2022), who emphasize the

importance of indigenous practices in accounting, suggesting that

community values can reshape traditional accounting practices to better

align with local aspirations.

Despite the advancements in accounting practices, challenges remain

in their implementation. Zhou (2022) discusses the difficulties accountants

face in adapting theoretical concepts to practical applications, particularly

in the context of rapidly changing technologies. This sentiment is echoed

by Herliansyah (2018), who notes that management accounting practices

must evolve to meet the demands of modern organizations. The need for

continuous professional development and adaptation to new practices is

critical for accountants to maintain relevance in the field.

Budgeting Practices

Budgeting practices are a critical component of accounting in service-

oriented businesses, serving as a vital tool for resource allocation,

performance evaluation, and strategic planning. For instance, Van and

Linh emphasize that budgeting is integral to the corporate management

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accounting system, enabling businesses to respond to environmental

changes and align resource allocation with specific goals (Van & Linh,

2023). This adaptability is particularly crucial in service sectors, where

market conditions can fluctuate rapidly.

Moreover, empirical studies reveal that traditional budgeting methods

continue to dominate despite the emergence of modern approaches such

as "beyond budgeting." Stryckova's research highlights that while some

firms are exploring innovative budgeting techniques, many are modifying

conventional practices to better suit their unique operational complexities

(Stryckova, 2023). This trend underscores the importance of

understanding the specific needs of businesses when implementing

budgeting practices, particularly in service industries where customer

interactions and operational efficiency are paramount.

The relationship between budgeting and business strategy is also

well-documented. Ilori and Efuntade argue that budgeting serves as a

central management control system that generates essential information

for coordinating and evaluating performance (Ilori & Efuntade, 2019). This

assertion is supported by findings from Legaspi, who identifies budgeting

as a key factor influencing business strategy, particularly in terms of

customer intimacy and operational excellence (Legaspi, 2020). Such

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insights suggest that budgeting is not merely a financial exercise but a

strategic tool that can enhance competitive advantage in service

businesses.

Furthermore, the integration of technology into budgeting processes

has been shown to improve efficiency and satisfaction among managers.

Bergmann et al. discuss how the digitization of budgeting through

business analytics can enhance the budgeting process, leading to better

decision-making and resource management (Bergmann et al., 2020). This

technological advancement is particularly relevant in today's digital age,

where service businesses must leverage data analytics to optimize their

budgeting practices and respond to market demands effectively.

In the context of small and medium enterprises (SMEs), budgeting

practices have a significant impact on profitability. Fortuna's study

indicates that effective budgeting, characterized by managerial

participation and strategic alignment, correlates positively with the

financial performance of SMEs (Fortuna, 2021). This finding is echoed in

research by Muda et al., which emphasizes the role of relational capital

and knowledge sharing in enhancing budgeting effectiveness within the

service sector (Muda et al., 2022). Such studies highlight the necessity for
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SMEs to adopt robust budgeting practices to navigate financial challenges

and achieve sustainable growth.

In conclusion, the literature underscores the multifaceted role of

budgeting in service-oriented businesses, illustrating its significance in

resource allocation, strategic alignment, and performance evaluation. As

businesses continue to adapt to changing environments, the evolution of

budgeting practices—incorporating both traditional and modern

techniques—will be crucial for maintaining competitiveness and achieving

organizational objectives.

Performance Evaluation Practices

Performance evaluation practices are essential in the service industry,

as they provide a framework for assessing the effectiveness and efficiency

of service delivery. These practices are crucial for ensuring that

organizations meet their strategic objectives and maintain high levels of

customer satisfaction. Recent literature emphasizes the importance of

various performance evaluation frameworks, such as the Balanced

Scorecard and customer satisfaction metrics, in enhancing service quality

and operational efficiency. For instance, Čečević and Stevanović highlight

the applicability of the Balanced Scorecard as a modern performance

measurement system that aids hospitality managers in improving service

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delivery (Čečević & Stevanović, 2018). This framework allows for a

comprehensive assessment of performance across multiple dimensions,

including financial, customer, internal processes, and learning and growth.

Moreover, the integration of customer feedback into performance

evaluation is increasingly recognized as a vital component of service

quality assessment. Wang and Xin propose a value evaluation method

based on customer perception, which underscores the significance of

aligning service offerings with customer expectations to enhance

competitiveness in the service sector (Wang & Xin, 2018). This approach

not only aids in measuring performance but also facilitates continuous

improvement by identifying areas that require enhancement based on

customer insights. Similarly, Singh et al. demonstrate the effectiveness of

the SERVQUAL model in evaluating service quality dimensions and their

impact on customer satisfaction, which is critical for service-oriented

businesses aiming to foster customer loyalty (Singh et al., 2021).

In addition to traditional performance metrics, the role of technology

in performance evaluation practices has gained traction. Kose et al.

discuss how effective scheduling and resource management through

technology can significantly influence business performance, emphasizing

the need for businesses to adopt systematic approaches to monitor and

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evaluate service delivery (Kose et al., 2021). The use of information

technology, particularly in scheduling and resource management, is

highlighted by Kose et al., who present a GIS-based scheduling system

designed to enhance the monitoring of field employees' performance in

service businesses (Kose et al., 2021). This technological integration not

only streamlines operations but also provides real-time data that can

inform performance evaluations. Furthermore, the importance of aligning

performance evaluation practices with strategic objectives is evident in the

research by Wang and Ma, which examines how national innovation

driving forces can promote high-quality development in the service

industry (Wang & Ma, 2020). This study illustrates that effective

performance evaluation is not merely about assessing past performance

but also about driving future growth and innovation. By establishing clear

performance indicators that align with strategic goals, service businesses

can better navigate the complexities of the market and enhance their

service offerings.

In conclusion, performance evaluation practices in the service

industry are multifaceted, encompassing traditional frameworks, customer

feedback mechanisms, and technological advancements. The literature

underscores the necessity for service-oriented businesses to adopt

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comprehensive performance evaluation systems that not only measure

effectiveness but also drive continuous improvement and strategic

alignment. As the service landscape evolves, these practices will be crucial

for maintaining competitiveness and ensuring customer satisfaction.

Costing Practices

Costing practices are fundamental to the financial management of

service-oriented businesses, as they directly influence pricing strategies,

profitability, and overall operational efficiency. Recent literature highlights

the significance of various costing methodologies, particularly Activity-

Based Costing (ABC), in enhancing the accuracy of cost allocation in

service industries. For instance, Kosasih et al. developed a model for

calculating the costs associated with laundry services, emphasizing the

importance of aligning cost calculations with actual service activities to

improve financial transparency and decision-making Kosasih et al. (2019).

This model illustrates how ABC can provide a more nuanced

understanding of costs by linking them directly to the activities that

consume resources, thereby enabling service businesses to identify

inefficiencies and optimize their operations.

Furthermore, the application of ABC is not limited to specific

industries; it has been effectively utilized in various sectors, including

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healthcare. Sharasanti's literature review on the implementation of ABC in

Indonesian hospitals demonstrates its effectiveness in tracing service

costs, which is crucial for managing healthcare expenses and enhancing

service delivery (Sharasanti, 2023). This adaptability of ABC across

different service contexts underscores its relevance as a strategic tool for

cost management, allowing organizations to respond to the unique

challenges they face in their respective markets.

In addition to ABC, the concept of Time-Driven Activity-Based Costing

(TDABC) has emerged as a valuable approach for service organizations,

particularly in the public sector. Vazakidis and Kyriakidou explored the

implementation of TDABC in the Greek General Chemical State

Laboratory, highlighting its potential to foster a cost-conscious culture

within public administration (Vazakidis & Kyriakidou, 2020). This method

simplifies the costing process by focusing on the time required to perform

activities, thus providing a more straightforward and efficient means of

cost allocation that can be particularly beneficial in environments where

resources are constrained.

Moreover, the integration of digital technologies into costing practices

is becoming increasingly important. Apibunyopas discusses various cost

reduction strategies in service businesses, emphasizing the role of digital

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transformation in optimizing cost structures while maintaining high levels

of customer satisfaction (Apibunyopas, 2023). The ability to leverage

technology for cost management not only enhances operational efficiency

but also allows service providers to remain competitive in an increasingly

digital marketplace.

The literature also points to the necessity of aligning costing practices

with strategic objectives to enhance overall business performance. Ismail

et al. found that implementing dynamic management control systems

(MCS) could significantly improve cost efficiency in small and medium

enterprises (SMEs) in Ghana (Ismail et al., 2019). This alignment ensures

that costing practices are not merely reactive but are integrated into the

broader strategic framework of the organization, facilitating informed

decision-making and resource allocation.

In conclusion, costing practices in service-oriented businesses are

multifaceted and critical for effective financial management. The literature

emphasizes the importance of methodologies such as Activity-Based

Costing and Time-Driven Activity-Based Costing, alongside the integration

of digital technologies, in enhancing cost transparency and operational

efficiency. As service businesses continue to navigate complex market

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dynamics, adopting robust costing practices will be essential for sustaining

competitiveness and achieving long-term success.

Financial Performance

The financial performance of micro enterprises is a critical area

of study, particularly as these businesses play a significant role in

economic development and job creation. This literature review

synthesizes recent research from 2018 to 2024, focusing on factors

influencing the financial performance of micro enterprises, including

financial literacy, management practices, and the impact of digital

financial services. Financial literacy is a pivotal factor affecting the

financial performance of micro enterprises. Budiasa et al. (2022)

emphasize that poor financial knowledge among business owners

leads to suboptimal financial management, negatively impacting the

overall financial condition of their enterprises. This sentiment is

supported by Milenia and Amalia (2023), who argue that a lack of

financial expertise in planning, managing, and reporting can hinder

the growth of micro enterprises, making them less competitive in the

market. Furthermore, research by Satiti (2020) highlights that

financial literacy is essential for improving business performance, as it

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enables owners to make informed financial decisions. The correlation

between financial literacy and performance is further substantiated by

Jumady et al. (2022), who found a positive relationship between

financial literacy and the performance of small businesses in

Makassar.

In addition to financial literacy, effective financial management

practices are crucial for enhancing the financial performance of micro

enterprises. Anangwe (2020) indicates that practices such as working

capital management and financial reporting significantly contribute to

improved performance in micro and small enterprises. Similarly,

Hasanudin (2023) emphasizes the importance of adopting efficient

financial management strategies to enhance the performance of

micro, small, and medium enterprises (MSMEs). The findings suggest

that micro enterprises that implement structured financial

management practices are likely to experience better financial

outcomes.

The role of digital financial services in improving the financial

performance of micro enterprises has gained attention in recent

years. Liu et al. (2022) highlight that improved financial knowledge

can enhance communication between micro enterprises and formal

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financial institutions, thereby facilitating better access to credit.

Moreover, research on digital banking indicates that digital financial

services can positively impact the financial performance of micro

enterprises by providing them with easier access to resources ("Effect

of Digital Banking on Financial Performance of Micro and Small

Enterprises in Nairobi County, Kenya," 2024). This is particularly

relevant in developing economies, where traditional banking service s

may be less accessible.

The challenges faced by micro enterprises in achieving optimal

financial performance often stem from external factors such as

financial constraints and market conditions. Bakhtiari et al. (2020)

review the literature on financial constraints and their impact on the

performance of SMEs, noting that limited access to credit can hinder

growth and profitability. Similarly, Urquidy et al. (2018) discuss how

deficiencies in economic and financial management practices can lead

to persistent issues such as debt and liquidity problems, threatening

the survival of micro enterprises. These studies underscore the

importance of addressing external financial barriers to enhance the

performance of micro enterprises.

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Profit

The profitability of micro enterprises is a crucial aspect of their

sustainability and growth, significantly impacting local economies and

employment rates. This literature review synthesizes recent studies

from 2018 to 2024, focusing on the factors influencing the

profitability of micro enterprises, including financial literacy, access to

finance, market conditions, and the effects of external economic

factors. Financial literacy is a fundamental determinant of profitability

in micro enterprises. Budiasa et al. (2022) highlight that inadequate

financial knowledge among business owners often leads to poor

financial management practices, which can adversely affect

profitability. This finding is supported by Endris and Kassegn (2023),

who demonstrate that access to reliable market information can

enhance profitability by improving decision-making processes related

to pricing and resource allocation. Furthermore, the study by

Ramadhani (2021) emphasizes that effective production planning,

which is closely tied to financial literacy, can significantly contribute

to the profitability of micro enterprises. Thus, enhancing financial

literacy among micro enterprise owners is essential for improving

their profitability.
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Access to finance is another critical factor influencing the

profitability of micro enterprises. Chingwaro (2024) discusses the

negative implications of usury loans on profitability, indicating that

reliance on high-interest loans can lead to financial distress and

reduced profits. In contrast, Ranabhat and Dhungana (2021) sug gest

that micro-credit can positively correlate with profit generation, as it

provides the necessary capital for business expansion and operational

efficiency. However, the effectiveness of such financing options often

depends on the ability of entrepreneurs to manage the borrowed

funds effectively. This is echoed by Tundui and Tundui (2018), who

indicate that access to loans does not always translate into increased

profitability, particularly when entrepreneurs lack the necessary

business skills.

Market conditions also play a significant role in determining the

profitability of micro enterprises. Eton et al. (2021) highlight that

financial inclusion is crucial for the growth of small and medium

enterprises, as it enables them to access necessary resources and

markets. The study suggests that bureaucratic barriers and high costs

associated with financial services can hinder profitability. Additionally,

research by Greve et al. (2022) indicates that external economic

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factors, such as energy price increases, can adversely affect the

profitability of micro enterprises, particularly in developing

economies. These findings underline the importance of a supportive

market environment for enhancing the profitability of micro

enterprises.

Moreover, the impact of innovation and strategic management

practices on profitability cannot be overlooked. Akkas (2023)

emphasizes that effective working capital management is essential for

maintaining profitability in micro enterprises. Similarly, Wu and Wu

(2020) discuss how financialization can influence profitability,

suggesting that enterprises that adapt to changing economic

conditions and innovate their business models are more likely to

achieve higher profit margins. This highlights the need for micro

enterprises to adopt strategic approaches that align with market

demands and economic trends.

Sales

The sales performance of micro enterprises has garnered

significant attention in recent years, particularly in the context of

digital transformation and economic resilience. The literature

indicates that the integration of e-commerce and digital marketing

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strategies is crucial for enhancing sales and sustaining operations,

especially in the face of challenges such as the COVID -19 pandemic.

Rahayu et al. (2021) emphasize the necessity of an e-commerce

system for micro enterprises like Canggah Coffee, which not only

stabilizes sales but also aids in strategic development through regular

sales recaps. Similarly, Harianto and Sari (2021) highlight that the

digitalization of micro, small, and medium enterprises (UMKM) into

online sales patterns has been a vital strategy for survival during the

pandemic, enabling these businesses to maintain their economic

contributions.

Moreover, the readiness of micro enterprises to adapt to the

evolving industrial landscape is influenced by various factors,

including the age and experience of the owners. Pariasa et al. (2019)

found that older owners tend to exhibit lower levels of innovation,

which negatively impacts their readiness to embrace new

technologies necessary for sales growth. This suggests that fostering

a culture of innovation within micro enterprises is essential for

enhancing their competitive edge in the market. The role of strategic

planning and network capabilities in driving business perf ormance is

also critical. Ahmad et al. (2023) argue that a well-defined sales force
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strategy, coupled with strong network capabilities, significantly

influences the performance of SMEs, including micro enterprises. This

is further supported by findings from Pelegrin et al. (2022), who

assert that entrepreneurial orientation—characterized by

proactiveness, innovativeness, and risk-taking—has positive

implications for sales growth in micro-businesses.

In addition to strategic approaches, the implementation of digital

marketing and optimization techniques is vital for maximizing online

sales. Rifai and Oktaviana (2020) discuss the importance of digital

marketing training for micro enterprises to enhance their online

presence and sales capabilities. Furthermore, Nurlina et al. (2023)

demonstrate that digital literacy and effective business strategies

directly impact the performance of micro enterprises in the culinary

sector, indicating that a comprehensive approach to digital

transformation is necessary for sales enhancement.

The financial performance of micro enterprises is also closely

linked to their ability to adopt modern payment systems. Wardhani et

al. (2023) reveal that the adoption of QR code payment systems

significantly improves financial performance by increasing transaction

volumes and sales turnover. This highlights the importance of

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integrating technology into financial operations to facilitate smoother

transactions and enhance customer satisfaction.

Cash Flow

The cash flow management of micro enterprises is a critical

aspect of their financial health and sustainability, particularly in the

context of economic fluctuations and external shocks such as the

COVID-19 pandemic. Effective cash flow management is essential for

ensuring liquidity, solvency, and the ability to meet operational

obligations. The literature highlights several determinants and

challenges associated with cash flow management in micro

enterprises, emphasizing the need for strategic planning and

forecasting.

One of the primary determinants of cash flow in micro

enterprises is the ability to forecast cash flows accurately. Dennis

(2023) emphasizes that cash flow forecasting skills are vital for

entrepreneurs, as they provide insights into the business's

profitability and financial health, enabling informed decision-making

and growth. This assertion is supported by Athia et al. (2023), who

argue that effective cash management significantly impacts business

sustainability, particularly for women-owned SMEs, which often face

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unique challenges in cash flow management. The inability to generate

sufficient cash from operations can lead to increased debt or

liquidation of assets, ultimately threatening the long-term viability of

these enterprises.

Moreover, cash flow volatility poses significant challenges for

micro enterprises. Jebran et al. (2019) discuss how cash flow

volatility can affect corporate cash holdings, particularly in turbulent

economic periods, suggesting that micro enterprises must develop

strategies to mitigate these risks. This volatility can hinder the ability

of businesses to maintain stable operations, as highlighted by Wiatt

et al. (2020), who found that cash flow problems significantly impact

small business recovery and resilience following natural disasters. The

implications of cash flow issues are particularly pronounced in micro

enterprises, where financial buffers are often minimal.

The role of cash flow in maintaining operational efficiency cannot

be overstated. Luo (2021) emphasizes that cash flow from operations

is crucial for sustaining business activities, and appropriate cash flow

management is necessary to maintain a positive cash flow. This is

echoed by Mwasingo (2022), who notes that cash is essential for day-

to-day operations and the survival of business entities, underscoring

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the importance of effective cash flow management in operational

planning. Furthermore, research by Dzingirai and Ndava (2022)

highlights the specific challenges faced by family-owned businesses in

managing cash flow, indicating a gap in financial management

practices that could be detrimental to their sustainability.

In the context of the COVID-19 pandemic, the importance of

cash flow has been further amplified. Zhu et al. (2022) argue that

maintaining healthy cash flow is critical for organizations to navigate

challenging market environments, reinforcing the notion that cash

flow is a key indicator of corporate stability. Additionally, Meliza

(2023) indicates that micro and small businesses experienced

significant cash flow constraints during the pandemic, leading to

temporary closures and financial distress. This situation necessitates

a reevaluation of cash flow management practices to enhance

resilience against future shocks.

Impact of Accounting Practices on

Micro Businesses’ Financial performance

The impact of accounting practices on the financial performance of

micro businesses is a critical area of study, particularly as these

 32

enterprises form the backbone of many economies. This literature review

synthesizes recent research findings from 2018 to 2024, focusing on how

accounting practices influence financial outcomes in micro businesses.

Accounting practices are essential for micro businesses as they provide a

framework for financial reporting and decision-making. According to

Maulida (2023), the implementation of Financial Accounting Standards for

Micro, Small, and Medium Enterprises (SAK EMKM) in Indonesia has been

pivotal for micro enterprises, enabling them to prepare financial reports

more effectively. This standardization not only aids in compliance but also

enhances the businesses' ability to make informed decisions, thereby

contributing to their growth and sustainability.

Furthermore, Gupta (2023) highlights the role of technology in

shaping accounting practices, indicating that the adoption of accounting

software has significantly improved the efficiency and accuracy of financial

reporting among micro enterprises in India. The integration of technology

into accounting practices allows for better data management, which is

crucial for financial performance. Moreover, the quality of financial

management practices directly correlates with the financial success of

micro businesses. Naim's study emphasizes that effective financial

management, including capital management and production efficiency,

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significantly impacts the profitability of micro enterprises in the culinary

sector of Jakarta (Naim, 2024). This assertion is supported by Gunawan

(2024), who notes that accounting literacy is a critical determinant for the

successful implementation of financial standards, which in turn affects

business performance. The ability to understand and utilize accounting

information is essential for micro business owners to navigate financial

challenges and capitalize on opportunities.

Additionally, the transformation of accounting practices in response to

business changes is crucial for micro enterprises. Syariati et al. (2020)

discuss how manufacturing micro enterprises have adapted their

accounting practices to meet the complexities of their operations, which

has led to improved financial outcomes. This adaptability is further echoed

by Yahya (2024), who illustrates that the transformation of business

models and the use of information technology significantly enhance the

quality of accounting information systems, thereby improving financial

management processes in Indonesian MSMEs.

The role of accountants in micro businesses cannot be overstated.

Hehanussa (2024) emphasizes that accountants equipped with

information technology skills are vital for the financial health of micro

enterprises, acting as business partners who contribute to strategic

 34

decision-making. This partnership is crucial, especially in the era of

globalization, where financial literacy and the ability to leverage

technology can determine the success of micro businesses.

Conceptual Framework

INDEPENDENT VARIABLE DEPENDENT VARIABLE

Accounting Practices Financial Performance

1. Budgeting Practices  Profits

2. Performance Evaluation  Sales
Practices  Cash flow
3. Costing Practices

Figure 1. Conceptual Framework of the Study

The conceptual framework depicts the study's variables. The

dependent variable is the financial performance of the selected

micro businesses with indicators profit, sales, and cash flow

which can be influenced by t he independent variable is the

accounting practices with indicator budgeting practices,

performance evaluation practices, and costing practices

 35

Hypothesis

The hypothesis of the study will be tested at 0.05 level

of significance:

Ho1. There is no significant difference in the impact of

accounting practices on the financial performance on

selected micro businesses in Barangay Poblacion, Malita,

Davao Occidental.
 36

CHAPTER III

METHODOLOGY

Research Locale

The study will be conducted in barangay Poblacion, Malita, Davao

Occidental. It is a vibrant community located in Davao Occidental,

Philippines, known for its rich cultural heritage and entrepreneurial spirit,

this area fosters a diverse arrangement of micro businesses that contribute

significantly to the local economy. These businesses, ranging from small

retail shops to service-oriented enterprises, form the backbone of the

community's economic activities. By focusing on selected micro businesses

within Poblacion, the research aims to explore the various accounting

practices employed by these enterprises and their direct impact on financial

performance. The locale serves as an ideal setting due to its dynamic

business environment and the unique challenges faced by micro

entrepreneurs, providing valuable insights into the relationship between

effective accounting practices and financial success in a localized context.

 37

Figure 2. Map of Barangay Poblacion, Malita, Davao Occidental

 38

Research Design

This study employs a correlational research design to investigate the

impact of accounting practices on the financial performance of selected

micro businesses in Poblacion, Malita, Davao Occidental. By utilizing this

design, the researchers aims to examine the relationship between various

accounting practices—such as budgeting practices, performance evaluation

practices, and costing practices to the financial performance in terms of

profits, sales, and cash flow. This design was the best to use since it

makes it possible for the researchers to reach their goal of investagiting

the impact of accounting practices on micro businesses’ financial

performance.

Sampling Design and Technique

To acquire deep insights for this study, a complete enumeration

technique will be utilized to select the sample size of the study. A total of

1,323 micro businesses has been recorded in the BPLO of the municipality

of Malita. This study focuses on micro businesses that is in the service

sector. The reseachers undergoes filtering and categorizing of the micro

businesses and as a result, a total of 186 micro businesses located in

 39

Poblacion, Malita which in the servicing sector has been identified. Using

complete enumeration sampling technique, the researchers decided to

include all the micro businesses which was identified as the respondent of

this study.

Barangay N = Population

Poblacion 186
Total 186
Table 1: Distribution of the Respondent

Respondents of the Study

The respondents of the study were one hundred eighty-six (186)

micro businesses at Poblacion, Malita. The researcher selected the

micro businesses which is in the service sector. The respondents will

assess their accounting practices and their financial performance using

an adapted survey questionnaire.

 40

Research Instrument

The study will utilize an adapted survey questionnaire from

Ashfaq et.al (2014) to gather data on the accounting practices and

an adapted survey questionnaire from Ahmad and Jamil (2020) for

the indicators of the financial performance namely sales, profit, and

cashflow. Some questions of the questionnaire for the fianancial

performance are anchored from different literatures namely Apriyani

et al. (2019), Talukder and Jan (2019), and Bagur-Femenías et al.

(2013). The respondents will have the option to choose from 5-1,

where 5 means strongly agree, 4 implies agree, 3 denotes neutral, 2

stands for disagree, and 1 indicates strongly disagree.

Data Analysis

The data gathered for the use of accounting practices by selected

micro businesses in Poblacion, Malita will be analyzed and interpreted

using the 5 point likert scale below.

RANGE OF SCORES DESCRIPTION INTERPRETATION

 41

4.21 – 5.00 Very High The usage of the

indicator is always

observed and felt. The

micro businesses

integrates the

accounting practice in

their course of

operation.

3.41 – 4.20 High The usage of the

indicator is often

observed and

manifested. The micro

businesses does not

frequently use this

accounting practice.

2.61 – 3.40 Moderate High The usage of the

indicator is sometimes
 42

observed and felt. The

micro businesses

occasionally uses the

accounting practice.

1.81 – 2.60 Low The usage of the

indicator is seldom

observed. The micro

businesses almost

doesn’t use the

accounting practice in

their business.

1.00 – 1.80 Very Low The usage of the

indicator is never

observed and felt. The

micro businesses does

not apply and use the

accounting practice.
 43

The data gathered for the financial performance of the selected

micro businesses in Poblacion, Malita will be analyzed and interpreted

using the 5 point likert scale below.

RANGE OF SCORES DESCRIPTION INTERPRETATION

4.21 – 5.00 Very High Indicates an excellent

financial performance of

micro businesses.

3.41 – 4.20 High Indicates a good

financial performance of

micro businesses.

2.61 – 3.40 Moderate High Indicates neither positive

nor negative financial

performance.

1.81 – 2.60 Low Indicates a poor financial

 44

performance of micro

businesses.

1.00 – 1.80 Very Low Indicates a very poor

financial performance of

micro businesses.
 45

Data Gathering Procedure

The researchers establish procedures to ensure the success of the

conduct of the research study. First, an endorsement letter will be secured

from the office of the Program Head of Bachelor of Science in Accounting

Information System and Dean of the Institute of Business Management

and Governance to commence the study. Second, a permission letter will

be sent to the Office of the Dean to ask permission for the conduct of the

study. Third, consent will be secured to the respondents with their

signatures expressing their willingness to participate in the study. Lastly,

the researchers will personally administer the questionnaire to the

respondents. Each respondent will be given a questionnaire. The

researchers will fully explain the purpose of the study and instruct clearly

on how they are going to answer the research instrument. After

answering, the questionnaires will be collected.

 46

Ethical Consideration

Ethical consideration is of utmost importance in doing quantitative

research. Since quantitative research includes personal data and opinions,

it is imperative to ensure the confidentiality of information. It will ensure

that the respondents are protected from undue intrusion, distress,

indignity, physical discomfort, and personal embarrassment or

psychological and other harm. In this study, the researcher will ensure

that the respondent’s participation is purely voluntary and there is no

coercion or deception. Further, the respondents are invited to participate

and clearly understand that they are under no obligation to do so and that

there are no negative consequences for them if they do not assist during

the conduct of the research. The respondents will be fully informed to

understand their roles and are comprehensively informed about any

negative consequences of participating in the study. Meanwhile, all

information gleaned in the study will be kept secret and confidential and

never be disclosed without the approval of the participants. The

researchers in the study will be identified any potential for harm and make

solutions for these to ensure the safety of the respondents.

 47

Statistical Tools

The following descriptive correlational statistical tools will be

used to analyze the data collected:

Mean

The mean or average will be use to analyze and interpret the data

from the selected micro businesses’ accounting practices and financial

performance located in Poblacion, Malita.

Correlational Analysis

The correlational analysis will be utilize to investigate the strenght

and direction of relationships between accounting practices and

financial performance of the selected micro businesses in Poblacion,

Malita.
 48

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APPENDIX I
 61

APPENDIX II

Accounting Practices questionnaire

Instruction. Answer the following statements honestly and critically.

Put a check mark on the box of your corresponding answer wehere, 5 =
Strongly Agree, 4 = Agree, 3 = Neutral, 2 = Disagree, and 1 =
Strongly Disagree.

Budgeting Practices 5 4 3 2 1

Questions SA A N D SD

Does your company use Budgeting technique

for planning?

Does your company use Budgeting technique

for controlling cost?

Does your company use Budgeting technique

for long term planning?

Does your company use Budgeting technique

for performance evaluation?

The company uses Flexible Budgeting

technique.

The company uses Activity Base Budgeting

technique.
 62

The company uses Zero Base Budgeting

technique.

The company uses incremental budgeting

technique.
 63

Performance evaluation Practices 5 4 3 2 1

Questions SA A N D SD

Does the company use financial measure to

analyze performance evaluation?

Does the company use non financial measure

about operation and innovation for performance

evaluation?

Does the company use non financial measure

about customers for performance evaluation?

Does the company use Benchmark for

performance evaluation?

Does the company use non financial measure

about employees for performance evaluation?

 64

Costing Practices 5 4 3 2 1

Questions SA A N D SD

Is the company deals fixed cost and variable

cost separately?

Is the company using plant wide as the basis of

overhead rate?

Is the company using department as the basis

of overhead rate?

Company uses learning curve technique for

reduce the cost.

Is the Company using cost of quality?

The company adopts Target costing practices.

The company uses Activity Base Costing (ABC).

Source: Ashfaq et.al (2014)

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APPENDIX III

Financial Performance questionnaire

Instruction. Answer the following statements honestly and critically.

Put a check mark on the box of your corresponding answer wehere, 5 =
Strongly Agree, 4 = Agree, 3 = Neutral, 2 = Disagree, and 1 =
Strongly Disagree.

Statement Measuring Financial Performance

5 4 3 2 1

Profits SA A N D SD

This enterprise makes a profit for this year.

Profits have increased in the past two
accounting periods.
More customers has been purchasing from me
in the last past years.
Sales

This enterprise makes higher sales for this year.

Sales have increased in the past two accounting

periods.

I have the ability to reach the sales targets

Cash Flows

This enterprise makes higher cash flow for this

year.
I am able to pay my short-term obligations
(e.g. electricity & water bill, suppliers &
employees).
I seldom experience cash-short in my
operation.
I am able to pay for additional equipment,
 66

renovation and expansion.

Sources: Ahmad and Jamil (2020), Apriyani et al. (2019),
Talukder and Jan (2019), and Bagur-Femenías et al. (2013)
 67

CURRICULUM VITAE

PERSONAL
DATA

Name : Ralph David P. Mama

Address : Bolila, Malita, Davao Occidental
Date of Birth : January 11, 2002
Place of Birth : Kibalatong, Malita, Davao Occidental
Sex : Male
Status : Single
Nationality : Filipino
Religion : Roman Catholic
Father : Edward Mama
Mother : Ana Marie Mama

Educational Background
Elementary : Kibalatong Elementary School 2013-2014
High School : MPNHS 2019-2020
College : SPAMAST
 68

CURRICULUM VITAE

PERSONAL
DATA

Name : Shane F. Sta Ana

Address : Basiawan, Sta. Maria, Davao Occidental
Date of Birth :
Place of Birth :
Sex : Female
Status : Single
Nationality : Filipino
Religion : Roman Catholic
Father :
Mother :

Educational Background
Elementary : Hilario E. Nardo Elementary School 2013-2014
High School : Basiawan National High School 2018-
2019
College : SPAMAST