Limitations of Financial Accounting

 Limitations of Financial Accounting:

 

Financial accounting is not free from limitations There are some limitations of financial accounting, which are as follows:

 

1) Financial Accounting ignores important non-monetary information:  Financial accounting does not consider non-monetary transactions and events. For example, the competition faced by the business, loyalty and efficiency of the employees, changes in value of money ,etc are important matters  in which management of the business is highly interested but accounting ignores such matters.

 

2) Financial accounting does not provide timely information: Financial accounting provide information in the form of financial statements at the end of accounting year. The business requires timely information at frequent intervals to enable the management to plan and take corrective action.

 

3) Financial accounting provides  information  in  aggregate : Financial accounting provides information of a business in aggregate. It fails to provide results of different products, departments and units.

 

4) Financial accounting fails to ascertain the price of products: Financial accounting does not analyze the cost of different products so that it fails to ascertain the price of products.

5) It fails to control the cost of expenses: Financial accounting does not have any mechanism for controlling the cost of the products produced by the business firm.