Explain the limitations of accounting.

ICSE Class 9 Answered

Explain the limitations of accounting.

Asked by vishalkumargupta880802 | 17 Jan, 2019, 10:37: PM

Expert Answer

Following are the limitations of Accounting:

It is not exact: It is possible that some estimates go wrong and therefore, the information or data available cannot be considered exact. Some information may be accurate whereas some other may not be exact.
Unreliable Data: It is possible that the data is not realistic as the records are prepared on the basis of accounting concepts and conventions which may not be realistic in a complete manner.
Ignores Qualitative Elements: Accounting takes into record all the financial transactions which are quantifiable. All the qualitative aspects which are not quantifiable are not recorded in the books of accounts.
Igonres the Effect of Price Level Changes: Since, accounting records are maintained on the basis of historical records, price level changes over the period of time are not taken into consideration at the time of determining the financial position of the entity.
Window Dressing: In order to give a good piucture of the financial position of the entity, it is possible that the accounts are manipulated or the treatments are altered in such manner that shows a good performance despite of the entity not performing well.

Answered by Surabhi Gawade | 18 Jan, 2019, 11:30: AM