Accounting records business transactions and events which are of financial nature. Do you consider it a limitation of accounting? Also explain other limitations of Accounting.

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Solution

Dear Student,
One of the limitations of accounting is that it records only those transactions which are of financial nature. Any event/ thing/transaction that does not have any monetary value , cannot be recorded in the books of accounts. Foreg: retirement of an experienced and loyal manager adversely effects a business. However, this cannot be recorded in the books of accounts.
Other Imitations of Accounting are as follows:

Window dressing (manipulation and misrepresentation) is possible in preparation and presentation of accounts

Market value of assets are ignored

Effects of inflation (price change) are ignored in the accounting records

Some items like, anticipated losses and profits are based on estimation and past experiences

Regards

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