Question

“Limitations of financial accounting have made management to realize the importance of
cost accounting.” Comment.

Answer 1

Answer:

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No control on cost: Financial accounting does not provide proper system of controlling to various elements of cost, that is material labor and expenses. Cost control procedure can be adopted by setting standards, but it lacks in financial accounting

Answer 2

Concept :

Financial accounting does not provide detailed information for each product, process, job or operation.It only provides information regarding income and expenditure, assets an liability of the organization on a particular date.Cost control procedure can be adopted by setting standards, but it lacks in financial accounting

Explanation:

Limitation of financial accounting refers to those factors which may averse the user of the financial statements, be it investors, management, directors, and all other stakeholders of the business, in arriving at any decision by simply relying on financial accounts only.

Some limitations of financial accounting :-

-No Clear Idea of Operating Efficiency

-Weakness not Spotted Out by Collective Results

-Not Helpful in the Price Fixation

-No Classification of Expenses and Accounts

-No Data for Comparison and Decision-making

-No Control on Cost

-No Standards to Assess the Performance

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