Limitation of Accounting
Limitation of Accounting:
Generally
it is assumed that account shows true and fair view of financial statement of
an enterprise. But it has following limitation
1) Accounts cannot reflect
loyalty and skill of personnel which are most valuable these days.
2) Accounts never tell
future of an enterprise. It only records
past events that has occurred. Example-
Balance sheet is prepared at the last moment of last day of accounting
year. It never estimates what will
happen in future.
3) Accounting mostly
ignores changes in money factor like inflation.
4) In some occasions
accounting principles conflict with each other.
5) Some accounting
estimates require personal judgment like provisions for doubtful debts, method
of depreciation adopted, writing of intangible assets etc.
6) Financial statements
consider only thing which are in monetary term.
Those which are not in monetary term are not considered by financial
statement like human resources.
7) Different Accounting policies for treatment of same item increase the probability of manipulation.
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