Learning Goal: I’m working on a accounting writing question and need the explanation and answer to help me learn.
The following are the various limitations of accounting.
1) Transactions of non-monetary nature do not find place in accounting. Accounting is limited to monetary transactions only. It excludes qualitative elements like reputation, employee morale and so on.
2) It is historical in nature. So it does not reflect current financial worth of the business.
3) Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting.
4) Elaborate recording of transactions increases the volume of accounting and the cost operations.
5) The system needs competent people, who should have sound knowledge for maintanance of accounting records.
6) Accounting policies are framed by the accountant. The figures of balance sheet are largely resulted by personal judgement of accountant hence it is the subjective factor that prevails in accounting and objective factor is ignored.