Question

“Financial accounting procedures are generally designed to ascertain
the periodic profit or loss, but there are important limitations and
deficiencies in the system.” Discuss.

Answer 1

Answer:

Financial accounting procedures are used to make sure certain processes are done in specific ways to minimize errors and losses. Standardization is the key to manage the accounting function, making sure that required tasks are done and not forgotten. Procedures also help in training new staff.

Answer 2

Limitations to financial accounting procedures are;

• As the financial statements are compiled on the basis of historical costs, they fail to take into account such factors as the decrease in money value, or increase in the price level changes.
• The financial statements are essentially interim reports usually prepared for an accounting period. Hence, the financial information as revealed by them is neither completed nor exact.
• If the inflation rate is relatively high, the amounts associated with assets and liabilities in the balance sheet will appear inordinately low, since they are not being adjusted for inflation.