The importance of maintaining proper books of accounts and accurate accounting practices have been emphasize in ensuring proper financial management in SME. This study, examines challenges that affect the application of accounting practice of micro and small scale enterprises in Ethiopia, in the case of sodo town. Unsuccessfulness as well as loss of hope to operate on micro and small scale enterprises is common difficulties. To achieve the research objectives the researcher applied descriptive research design, primary data were collected by using Proportionate stratified sampling technique from samples of 209 owners. Chi-square test was used to examine the factors that affect the application of accounting practices. The results of the study concluded that respondents have understanding on contribution of accounting practice for growth of enterprises but they are not properly implementing, because of Lack of skills to handle asset and liabilityto prepare financial statements, distrustful attitude of owner, Cost of hiring qualified employees, finally fear taxation to disclose all information. Finally the researcher recommended that implementation of accounting practice by knowledgeable person provides true reflection of the enterprises financial performance that required for quality decision making towards success.