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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