What practical difficulties are encountered by a trader due to incompleteness of accounting records?
The following are the difficulties that are encountered by a trader due to incompleteness of accounting records.
(i) Accuracy of Accounts:
When incomplete records are maintained, arithmetical accuracy of accounts cannot be ensured.
(ii) Encourages Fraud:
Incomplete records encourages fraud and provides sufficient scope for bluffing and carelessness.
(iii) Difficult to Analyse the True Financial Position:
As profit or loss cannot be ascertained easily, the balance sheet cannot be easily prepared. Hence,the absence of balance sheet will not reflect the true financial position of the business.
(iv) Difficulty in comparison:
Due to the incomplete records and non-availability of previous years data, comparison is not possible. Comparisons with other firms is also not possible.
(v) Unacceptable to Tax Authorities:
Since they do not reflect the true and acceptable presentation of expenses and revenues.These are not acceptable by the tax authorities. Many other problems such as inconvenience in getting the profitability and liquidity of business, difficulty in getting fund from outside etc., are encountered.