Sunday, November 30, 2008

Limitation of Financial Accounting

There are many limitation of financial accounting which we are giving in the following list :-
1. No practical view of Performance : - Financial Accounting is fully bookish , we do not do any adjustment of inflation and deflation in financial accounting . It may possible that our financial statement will not show our true financial and revenue position . Suppose , we make our final accounts one the basis of historical cost and our assets shows of RS. 500000 but due to deflation its value at market may be RS. 200000 , so RS. 300000 is dead capital is also included in financial statement of financial accounting.

2. No calculation of Weakness :- Financial accounting deems whole business is one unit and gives us net result of business .In this we can not calculate each job , process and department's net profit or loss . So this accounting system can not bring the weakness of business in the front of us .

3. No helpful in price determination:- Financial accounting is not for calculating the price of product , services because it does not provide deep analysis of the cost of each job and each activity.

4. No proper control on the costs :- Financial accounting can not be helpful deeply control on the cost of supply of materials , labours and other overheads .

5. No answer of many questions :- Financial accounting does not give the questions like

a) Should we try to sell more goods

b) If we accept a order or contract , is it will gives us proper profit on that order or contract .

c) Why is net profit is so minimum , even our production is very much.

d) If we increase the cost of labour by .50 paise then is it necessary to increase the sale price .

See Also

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