Limitations of financial accounting, Financial Accounting

LIMITATIONS OF FINANCIAL ACCOUNTING

1. Simply transactions which can be calculated in terms of money can be recorded in the books of accounts. Actions, though important they may be to the business, do not locate a place in the accounts if they cannot be calculated in terms of money.

2. According to the cost idea, assets are recorded at the cost at which they are acquired and so ignore the changes in values of assets brought about by changing value of money and market factors.

3. There is disagreement between one accounting principle and another. For instance, current resources are valued on the foundation of cost or market price either is less according to the principle of conservatism. So, in one year cost basis may be taken, while in another year market price may be taken. This standard contravenes the principle of consistency4. The balance sheet is basically the result of the personal judgment of the accountant with regard to the acceptance of accounting policies and as such objectivity factor is lost.

5. Financial accounting can be understood just by persons who have accounting knowledge.

6. Inter firm comparison and relative study of two periods are not promising under this system, as necessary past information cannot be made obtainable.

7. Financial accounting does not point to the cost behavior, so cost control cannot be adopted.

Posted Date: 10/15/2012 5:13:21 AM | Location : United States







Related Discussions:- Limitations of financial accounting, Assignment Help, Ask Question on Limitations of financial accounting, Get Answer, Expert's Help, Limitations of financial accounting Discussions

Write discussion on Limitations of financial accounting
Your posts are moderated
Related Questions
RSC Designs quarterly selling and distribution expenses are $100,000 including ($10,000 depreciation), and are expected to be paid in the quarter incurred. Quarterly administrat

1. Will implementing SAP R/3 across the entire PCD division provide the division with a competitive advantage?  Justify your answer carefully. 2. The Raleigh team promised IBM c

Fair value adjustment IFRS 3 requires that goodwill on consolidation should be based on the fair values of the net assets of the subsidiary company on the date of acquisition. T

Illustration of Admission of a new partner XYZ have been trading as equal partners having capital contributions of £300,000, £250,000 and £200,000 respectively.  They  agreed

In January, 2008, Sanford Corporation purchased a patent for a new product for $1,200,000. The patent was valid for fifteen years but it was estimated to have a useful life of ten

AskA of Surat consign goods to B of Jaipur to be sold at or above invoice price. B is entiled to get a commission of 8% on sales at invoice price plus 25% of any surplus price real

Suppose you are a financial manager of Yuen Cheong Manufacturng Company. Due to the rising demand of product X, Yuen Cheong Manufacturng Company decides to open a new production pl

what are the types and objectives of international accounting standersds?

In January 2011, Rogers Co. purchased a machine that cost $85,000. The equipment is estimated to have a 5-year life and a salvage value of $15,000. a) Compute the amount of depr

A classmate is considering dropping his or her accounting class because he or she cannot understand the rules of debits and credits. Explain the rules of debits and credits in a wa