Question

Explain any five limitations of Accounting.​

Answer 1

Answer:

Merits and Demerits of Accounting. Some of the advantages of accounting are Maintenance of business records, Preparation of financial statements, Comparison of results, Decision making, Evidence in legal matters, Provides information to related parties.

One of the biggest limitations of accounting is that it cannot measure things/events that do not have a monetary value. If a certain factor, no matter how important, cannot be expressed in money it finds no place in accounting

Answer 2

Answer:

The followings are the main limitations of Accounting.

1. Accounting records only those transactions which can be measured in monetary terms.

2. Accounting transactions are recorded at cost in the books.The effect of price level changes is not brought into the books with the result that comparison of the various years becomes difficult. For example, the sale to total asset in 2009 would be much higher than in 2002 due to rising prices , fixed assets being shown at the cost and not at market price.

3. Accounting statements are prepared by following basic concepts and conventions. Therefore the accounting information may not be realistic.

4. Accountant may select any method of depreciation , valuation of stock, amortization of fixed assets , treatment of deferred revenue expenditure. Therefore accounting statements are influenced by the personal judgement of the accountant.