What are the limitations of accounting ?
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Measurability. One of the biggest limitations of accounting is that it cannot measure things/events that do not have a monetary value. ...
No Future Assesment. ...
Historical Costs. ...
Accounting Policies. ...
Estimates. ...
Verifiability. ...
Errors and Frauds.
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Following are the limitations of accounting:-
- Accounting is not precise:- Accounting is not completely free from personal bias or judgment.
- Accounting is done on historic values of assets:- Accounting records assets at their historical cost less depreciation. It does not reflect their current market value.
- Ignore the effect of price level changes:- Accounting statements are prepared at historical cost. So changes in the value of money are ignored.
- Ignore the qualitative information:- Accounting records only monetary transactions. It ignores the qualitative aspects.
- Affected by window dressing:- Window dressing means manipulation in accounting to present a more favourable position of the business than the actual position.
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