05 Limitations of financial accounting

1. Supplies Limited Information

1. Only financial transactions information is provided
2. Information is only about the financial transactions

2. Personal judgement impacts financial figures

3. NO COST CONTROLLING

1. Cost controlling is not feasible because the total cost is only known at the end of the financial period.
2. very difficult to control cost during day to day business

4. Difficulty in Price setting

1. Only when all costs relating to the product have been incurred, its overall cost can be determined
2. In financial accounting it is not possible to know the product price in advanced

5. Recording actual cost

1. Only real cost of the asset is recorded in financial accounting
2. asset values are subject to change but only their purchase costs are recorded
3. price changes are not recorded nor reflected in financial accounting

6. Incomplete revelation of cost

1. In financial accounting, only activities and transactions which can be measured in monetary terms can be recorded.
2. It cannot record many other aspects important for business organizations like - effective management, product demand, industrial relationship

7. No proper division of cost

1. The costs are not divided into Direct or Indirect costs, variable or fixed cost etc.
2. this division of costs helps organizations to control cost

8. No proper system for performance evaluation

1. No system to create norms and standards to evaluate how effectively a company uses its resources - labor, materials, other costs etc.

9. Technical subject

1. Its a technical subject, as the average person cannot understand it
2. The understanding of accounting and its practices is necessary to analyze financial data and make wise decisions

10. Accounting principles cant be evaluated

1. Principles cant be accessed or evaluated
2. The actual performance cant be compared to the planned amount
3. The budget and the result cant be compared.