Question

Limitations of financial accounting has made management to realize the importance of cost accounting. explain

Answer 1

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It only divides expenditure in to two categories as Capital and Revenue. No helpful in price fixation: Financial accounting does not provide adequate information for fixation of selling prices of the product produced or services rendered by the business. It is not also able to prepare tender or quotations.

Answer 2

Answer:

Cost accounting aids management in anticipating the cost and selling price of a good or service, which helps them create business strategies. The management can develop methods to control expenses with the goal of achieving maximum profitability by using cost value as a reference.

Explanation:

• The term "limitation of financial accounting" refers to conditions that could make it difficult for any user of the financial statements—including shareholders, executives, directors, and other interested parties in the company—to make a choice based solely on those figures.
• Limitations of Cost Accounting: Cost Accounting Is Not Necessary, Small Business Concerns Cannot Adopt It, It Is Very Expensive, And The Results Are Misleading.
• Cost Accounting Is Not Required: Small Businesses Cannot Adopt Cost Accounting System Issues: Cost Accounting System is Exorbitantly Expensive Costing Results are Inaccurate:

• It solely separates expenses into two groups: capital expenditures and revenue. No assistance in fixing prices: The information provided by financial accounting is insufficient for determining the selling prices of the goods produced or the services provided by the company. Additionally, it cannot create bids or quotes.

Hence, limitations of financial accounting has made management to realize the importance of cost accounting.

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