The Advantages of

Management Accounting in
Micro Small and Medium
Enterprises

Cristine Bernadette H. Dominico

Bulacan State University-Graduate School
July 3, 2021
Abstract:
The purpose of this study is to discuss the advantages of management accounting concept and practices
for developing micro-, small-, and medium-sized enterprises (MSMEs) to aid the sustainable competitive
advantage by conducting a questionnaire and likert style survey method. Thus, the main problems
investigated in this study are: a) MSMEs do not have knowledge in inventories; b) lack of knowledge in
planning; c) MSMEs do not have a good financial administration and management system; d) Proper
record keeping and monitoring; and e) limited knowledge in strategies and employee By using the online
survey monkey tool, the number of samples was 40 MSMEs in Sta Maria Bulacan and nearby
municipalities, The results of this study confirmed that the MSMEs should pay attention to five aspects
referred to are as follows: 1) Business strategy; 2) Inventories and record keeping; 3) Budgeting and
Forecasting; 4) Financial literacy; and 5) Evaluation of staff and business.

1.Introduction:
MSME’s (Micro, Small and Medium Enterprises) is one of the vital players in our economy. From the name
itself it consists of Micro, Small and Medium businesses. They play the vital role in the growth and
sustainability of an economy.

Business Academy an online website stated that MSME’s here in the Philippines are tagged as “heroes of
the Philippine economy” While their name may connote a diminutive size, they have a big impact on the
country’s economy. (MyBusinessAcademyph, n.d.)

These enterprises provide employment to a vast number of Fiipinos. According to the Department of
Trade and Industry (DTI), in 2017 MSMEs accounted for 99.56% of total businesses in the country — nearly
925,000 Filipino enterprises delivering goods and services to customers every working day. And of this
number, 90% were microenterprises or those with total assets of less than Php3,000,000, 9.6% were small
enterprises, and 0.4% were medium enterprises. DTI estimated that MSMEs contributed 35.7% of
the total value-added or gross domestic product in 2018. MSMEs generated 5.7 million jobs or 63.2% of
the total employment in 2018. (Dti, 2018)

Collectively, MSMEs are those with employee size of less than 200 and with asset size of below P100
million. Msme’s also helped our country in terms of global economy. The studies conducted by the
Philippine Statistics Authority (PSA), concluded that MSMEs make up 25% of the country’s total exports
revenue, via arrangements with large firms or by supplying to companies that export. (cpbrd, nd)

The Philippines has two operational definitions of small and medium enterprises. Based on employment
which is the most commonly used definition in the country, the different size categories are classified as
follows:

Micro enterprises: 1-9 employees, small enterprises: 10-99 employees and Medium: 100-199 employees.

In terms of the assets: Micro enterprises: P3 million or less, small enterprises: P3-15 million and Medium:
P15-100 million. In terms of number of establishments; micro, small, and medium enterprises (MSMEs)
dominate the economy and account almost 99.5% business establishment in the Philippines for the year
2019. (Aldaba, 2012)
But despite of rapid growth of MSME’s and its substantial potential they faced difficulty in terms of
sustainability. During the recent Covid 19 pandemic they have faced an extreme challenge not only
because of the protocol implemented even after the Enhanced Community quarantine restrictions and a
lot of these businesses resorted to online business transactions. According to Sir Jorge Noel Wieneke,
president of the Association of Filipino Franchisers, Inc. (AFFI) and president and CEO of Tokyo Tempura,
has observed that the MSME sector is severely hit by the COVID-19 crisis, as no cash flow is coming in
even before the ECQ started and even after the restriction is lifted. (Conoza, 2020).

The current economic situation is not friendly to small industries as there is still a lot of challenges
entrepreneurs faced. Among those problems is the lack of financial expertise and knowledge on
accounting system and its application. In absence of financial knowledge, entrepreneurs may end up
taking wrong decisions that may cost their business. MSME loans are available for additional capital or to
purchased additional stocks. In fact, a lot of MSME loan are offered here in the Philippines but
entrepreneurs should also consider the interest rate, the possible return on investment and the proper
cost allocation.

The question now boils down as to what financial methods can MSME do to achieved a sustainable
business.

Accounting practices in MSME are simple. Some might not even know that they are applying basic
management accounting in their businesses by keeping a complete record of all the income and expenses
and accurately extracting financial information from business transactions. In this study we will thoroughly
examine the management accounting concepts that MSME’s used in their business and how this helps in
keeping their businesses afloat.

2. Literature review
2.1 Entrepreneurship
According to Hisrich et al. (2005), entrepreneurship is the process of creating something new with risks
and benefits. The meaning implies that in opening a business, a person is based on a new idea from himself
to open a business that is different from existing businesses, and all businesses that are opened will be
exposed to a risk faced (Camba, 2020; Rojikinnor, Gani, Saleh, & Amin, 2020; Yi, Han, & Cha, 2018).
Robbins and Mary (2002) state that entrepreneurship is the process by which an individual or group of
individuals uses organized efforts and means to pursue opportunities to create value and grow by meeting
desires and needs through innovation and uniqueness about what resource issues are currently
controlled. It gives the meaning that the organization is an effort of one or two people to achieve the goal
supported by available resources. The resources available here include man, money, method, market,
machine, and information. According to Jones and Jennifer (2003), entrepreneurship is the mobilization
of resources to seize opportunities to meet customer needs with new goods and services. The meaning
also indicates that the organization in a business is not easyso that the objectives can be achieved. All
resources consisting of man, money, methods, market, machine, and information must be driven by the
business owner employing existing management principles (plan, do, check, and action) (Safriansyah,
Udin, & Adnan, 2019; Yuniawan, Putri, & Udin, 2017; Handayani et al., 2017).
2.2 Accounting and Management Accounting
Accounting has been with us since the ancient times. Luca Pacioli, father of accounting wrote Summa de
Arithmetica, Geometria, Proportioni et Proportionalita ("The Collected Knowledge of Arithmetic,
Geometry, Proportion, and Proportionality") in 1494, which included a 27-page treatise on bookkeeping.
His book was one of the first published using the historical Gutenberg press, and the included treatise was
the first known published work on the topic of double-entry bookkeeping. For as long as civilizations have
been engaging in trade or organized systems of government, methods of record keeping, accounting, and
accounting tools have been in use in summarizing business and financial transactions. (Bellis,2019)

One of the branches of Accounting, the Management Accounting aims in helping managers in making
financial decisions. This type of accounting provides data about a company’s operations to managers. The
focus of managerial accounting is to provide data that managers need to make decisions about a
business’s operations. Managerial accounting includes budgeting and forecasting, cost analysis, financial
analysis, reviewing past business decisions. (Freshbooks, nd).

3. Research Methods
The 2019 List of Establishments of the Philippine Statistics Authority (PSA) recorded a total of 1,000,506
business enterprises operating in the country. Of these, 995,745 (99.5%) are MSMEs and 4,761 (0.5%) are
large enterprises. Micro enterprises constitute 89% (891,044) of total MSME establishments, followed by
small enterprises at 10% (99,936) and medium enterprises at 0.5% (4,765).

This study was conducted and focuses on Micro Small enterprises in Sta Maria, Bulacan and nearby
municipalities. The questionnaire type is Multiple choice questions and likert scales respondents a range
of options as what they practice in business.The total number of respondents are 40 MSME owners on
which 37 business are Micro small. PSA recorded a total of 115,877 (11.6%) MSME’s in Central Luzon. Due
to restrictions this research was based on that total number of populations with a 15% margin of error.
Most of the respondents resides in Sta Maria Bulacan and was selected to answer manually. Some
Respondents located are selected through online business page tracing, creating an online survey monkey
questionnaire.
4. Results
In this discussion, researcher would analyze and discuss the following accounting practices and how they
help entrepreneurs.
The results of the online survey related to the MSME’s accounting business strategy are as follows:

✓ The longer the business is operating the more stable it becomes.

✓ Longer operation of a business shows their application of management accounting practices.
✓ Start-up MSME’s struggle not only because of inexperience but also because of lack of knowledge
in inventories.
✓ MSME’s who applied proper inventories have higher income vs those who did not.
✓ MSME’s who knows the daily target sales on their business avoid loss because they know the
break-even.
✓ MSME’s who have back up plan survive unforeseen events such as the covid 19. They incorporate
strategies such as posting their business and selling online.
 ✓ A proper recording keeping of daily income help MSME’s monitor the behavior and back up any
management decisions.
✓ Expense monitoring aids entrepreneurs in budgeting and proper allocation of cost.
✓ MSME’s who conducted comparison and analysis of the daily, monthly and yearly income tend
to have higher income because they monitor the business properly.
✓ A routine evaluation of staffs helps the business become more productive.

5. Discussions and Conclusions

This study concludes that MSMEs have to pay attention to five aspects to improve competitiveness in
their business. The aspects referred to are as follows: 1) Business strategy; 2) Inventories and record
keeping; 3) Budgeting and Forecasting; 4) Financial literacy; and 5) Evaluation of staff and business.

1. Business Strategy, MSME’s must be able to formulate the right business strategy to achieve its vision,
mission, goals, and targets. Knowing your competitors, having a daily sales target, promoting your
business online and having a back-up plan.

2. Inventories and record keeping, for MSME’s a simple maintaining of records in a manner that ensures
timely, efficient, and accurate monitoring of needed financial information. It can be a simple logbook or
an excel file containing the daily sales and expenses. It can be used in tracking and managing stock, work
in progress, customer’s orders, jobs or other details entrepreneurs requires to make quality decisions.

3. Budgeting and Forecasting, Planning is a very important task of an entrepreneur. They need to pay
attention to this and must work out a proper forecasting of budgets and expense and formulate back-up
plans in case the enterprise started to incur losses.

4. Financial literacy, If Entrepreneurs don’t have a knowledge in their current financial situation, plans will
be based on a guesswork. MSME lenders will also want to see well-organized finances before they commit
to funding. A separate bank account will help to maintained a record of the business.

5. Evaluation of staff and business, Entrepreneurs have a responsibility to keep certain records about the
employees, such as performance reviews, and so on. It will help the business to be productive if employees
are well evaluated. For those business who have no employee especial micro-small they can also evaluate
the past business decisions and formulate a better financial plan.

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Aldaba, R. (nd) DIR.

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pdf#:~:text=The%20Philippines%20has%20two
%20operational%20definitions%20of%20small,
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199%20employees%20Large%3A%20200%20or
%20more%20employees