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Limitations of Financial Accounting


Following are the limitations of accounting:

Only monetary transactions: Transactions and events howsoever important they may be, do not find a place in the accounts if they cannot be measured in terms of money.

Assets at cost: Assets are recorded at their cost Hence fail to show real worth of the business.

Personal judgment: Adoption of various accounting policies depends on the personal judgment As a result, financial statements may not be objective and comparable.

Not exact : Accounting information is sometimes based on estimates. Hence do not reflect the true position of the business.

Not a good tool for management : Accounts record the past fact which does not help the management for decision-making. for future .But it will always be better to have candle (some basis) rather than going in dark (i.e. without light)


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