Explain in brief any four limitations of accounting.
Explain in brief any four limitations of accounting.
Limitations of Accounting : (Any four)
1. Financial accounting is not absolutely exact : Accounting information is not necessarily exact. Lot of information presented in the books of account are based on personal judgment. There cannot be absolute guarantee of accuracy when assumptions are based on personal opinion.
2. Financial accounting does not show the exact worth of business : The values of most of the assets in the books are presented on the basis of their purchase price, which is known as historic figures. Their present market values or realizable values are usually quite different. In other words, the books of accounts fail to show the exact value of assets or liabilities.
3. Problem of window dressing : Balance sheet figures are often modified to make it look better. This process conceals many weaknesses of the business. Thus the accounting information becomes unreliable for accurate judgment.
4. Worthless assets often shown in the balance sheet : Several worthless items can appear in the balance sheet as asset. This will project a wrong picture of the business.
5. No effect of inflationary trends : Currency is not a stable unit of measurement of value. Inflation can make the value of currency itself different. Measurement, this "elastic tape" can give conflicting results.
Limitations of Accounting : (Any four)
1. Financial accounting is not absolutely exact : Accounting information is not necessarily exact. Lot of information presented in the books of account are based on personal judgment. There cannot be absolute guarantee of accuracy when assumptions are based on personal opinion.
2. Financial accounting does not show the exact worth of business : The values of most of the assets in the books are presented on the basis of their purchase price, which is known as historic figures. Their present market values or realizable values are usually quite different. In other words, the books of accounts fail to show the exact value of assets or liabilities.
3. Problem of window dressing : Balance sheet figures are often modified to make it look better. This process conceals many weaknesses of the business. Thus the accounting information becomes unreliable for accurate judgment.
4. Worthless assets often shown in the balance sheet : Several worthless items can appear in the balance sheet as asset. This will project a wrong picture of the business.
5. No effect of inflationary trends : Currency is not a stable unit of measurement of value. Inflation can make the value of currency itself different. Measurement, this "elastic tape" can give conflicting results.
