No doubt, the accounts are the back-bone of the business firm and other non- business entities but as you know that nothing is complete in this world. Though, there are unlimited benefits of accounting but there are few shortcomings also. We can summarize these limitations of accounting as follow:-
- Only financial transactions are recorded in accounting system but there are other events which are not of financial nature, can not be recorded in accounts. For example the performance of an employee can not be recorded in accounts.
- The actual value of certain assets is not shown in the books. For example the value of fixed assets is shown on the basis of estimated life of the fixed assets. The value of closing stock is also shown on lower of cost or market value. There may be the difference between the actual market value and the book value.
- A firm shows certain debtor or amount receivable in the balance sheet on a particular date. But some time it is very difficult to say whether the amount shown in balance sheet will be received by firm or no.
- Some time so many contingent liabilities may occur after the preparation of profit & loss account and balance sheet relating to that particular period. In this case, it will be very difficult to know the correct profit or loss of the firm for that period.
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