Limitations of Accounting
Limitations of Accounting
Accounting records relate to the past transactions, which provide fairly good account of the economic activity of the business enterprise. However, from decision-making viewpoint we need information, which relates not only to past but also about present and future. Financial accounting makes provision for financial information but it does not provide non-financial information such as behavioral and socio-economic. If the objective of accounting reports is to influence the behavior through decision-making then it must provide the data concerning the behavior and outcome of human activity to facilitate performance evaluation. Therefore, the accounting information does not fully meet different types of information-requirements of varied decision making situations. Accounting provides stewardship information and not decisional information
Re: Limitations of Accounting
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Thank for sharing this informative information. i have got lot of information from this post. These tips are very useful... Keep it up...
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Thank for sharing this informative information. i have got lot of information from this post. These tips are very useful... Keep it up...
Thanks
Have a nice time ahead.
Re: Limitations of Accounting
Accounting vs. Book-keepingBook-keeping concerns itself with the recording (correctly and in a set of books) of those transactions that result in the transfer of money or money's worth. Whereas accounting is comprehensive in perspective. It extends to classifying, summarizing, presenting and even analyzing accounting information .
Accounting vs. Accountancy
Cost Accounting
Uses of Accounting
(1) How good or bad is the financial condition of the business?
(2) Has the business activity resulted in a profit or loss?
(3) How well the different departments of the business have performed in the past?
(4) Which activities or products have been profitable?
(5) Out of the existing products which should be discontinued and the production of which commodities should be increased.
(6) Whether to buy a component from the market or to manufacture the same?
(7) Whether the cost of production is reasonable or excessive?
(8) What has been the impact of existing policies on the profitability of the business?
Accounting vs. Accountancy
Cost Accounting
Uses of Accounting
(1) How good or bad is the financial condition of the business?
(2) Has the business activity resulted in a profit or loss?
(3) How well the different departments of the business have performed in the past?
(4) Which activities or products have been profitable?
(5) Out of the existing products which should be discontinued and the production of which commodities should be increased.
(6) Whether to buy a component from the market or to manufacture the same?
(7) Whether the cost of production is reasonable or excessive?
(8) What has been the impact of existing policies on the profitability of the business?
Re: Limitations of Accounting
The Securities and Exchange Commission has been encouraging American corporations to make forward looking statements by providing a "safe-harbor" from prosecution if adequate disclosure is present. Annual reports of American companies make reference to the Private Securities Litigation Reform Act of 1995, and list factors that may cause results to differ form those projected. Moreover, in SEC 10-K filing, it is common to find lengthy descriptions of all the major sources of company risk. Because accountants do not want to be involved in these projections, no standards have been formulated for their preparation. As a result, it is difficult to compare projections made by firms. Still, it is unfortunate that forecasted results can't be made more uniform and acceptable.
It is also understandable that accountants do not want to be involved in forecasts because that could taint their credibility with regard to those accounting results they present as reliable. Although accounting numbers are as reliable as they can be, in the sense that this is the best the profession can offer, there are many instances where adjustments are warranted. For, even if the numbers are arithmetically correct and are verifiable (by tracing them to some document), they may not reflect reality. Or at least not the reality as it is useful to make predictions about future performance. Throughout the following chapters, each accounting number will be scrutinized for possible modifications, additions or deductions that would make it more meaningful.
It is also understandable that accountants do not want to be involved in forecasts because that could taint their credibility with regard to those accounting results they present as reliable. Although accounting numbers are as reliable as they can be, in the sense that this is the best the profession can offer, there are many instances where adjustments are warranted. For, even if the numbers are arithmetically correct and are verifiable (by tracing them to some document), they may not reflect reality. Or at least not the reality as it is useful to make predictions about future performance. Throughout the following chapters, each accounting number will be scrutinized for possible modifications, additions or deductions that would make it more meaningful.