limitations of financial Accounts ?

What are the limitations of financial Accounting

Financial accounts are an integral part of business. Which is compulsory prepared by the business due to the legal and business own compulsion. Without a financial account business is a blind like human being with lost eyes. Every individual and party who are interested in business rely on financial accounts. So instead of such an essential requirement of financial accounting, it has some Limitations. 

There are some important limitations of financial accounts. Which are as follows.

1. No Provision for Material Control:- Financial Control does not provide details about material consumed in the business. Rather, it only contains opening and closing stock values. It also remains silent about the issuing material to different departments, jobs and price at which it has been issued. Therefore the cost of raw material consumed for the manufacturing of a unit or centre cannot be ascertained from financial accounts. What are the limitations of financial Accounting
2. No Provision for detailed Labour cost.:- Financial accounts only contain wages paid to the workers of a particular period. But it also remains silent about the workers employed, number of workers engaged on different jobs of different departments, number of hours workers, rate of wages, product wise or department wise etc. Financial account does not make a distinction between direct labour and indirect labour cost.
3. Classification of Accounts in a general Manner:- Financial accounting system classifies accounts into personal, real and nominal accounts. Such classification does not reveal the cost of production product-wise, Job-wise, work-order-wise etc.
4. No Classification between direct and indirect costs:- Under the financial accounts costs are not classified into direct and indirect costs. Which costs are involved in all operations and products as well as services of the business.
5. Ascertainment of true cost is not possible:- Financial accounts include all expenses of business whether it is not relevant to the cost of production in the business. As product wise, job wise and work order cost cannot be ascertained by the financial accounting. What are the limitations of financial Accounting
6. No provision for system of standard:- In manufacturing concerns production is carried on a large scale basis, so one manager cannot supervise personally each and every activity involved in the manufacturing of goods. So all standards are fixed in advance for the various activities of the manufacturing concern. So actual production is compared with the determined standard in order to find the difference and for remedial actions are taken, in case the performance is below standard. So financial accounting has no such provision for a system of standard.
7. No wastage of records:- Financial accounts do not keep records for wastage of material, man-hours and machine hours placed during the course of production. Such wastage cannot be eliminated or minimised by financial accounting.
8. Not helpful for determining selling price and Tender Price:- Financial Accounting system fails to provide exact cost of production on which based manufacturing can determine selling price for his products. Financial account does not also provide the cost price by which tender price can be determined. What are the limitations of financial Accounting
9. No Assistance in cost control:- Financial accounts do not provide a system by which cost can be controlled. As financial accounts do record all costs after the cost incurred. So no room is left for correction action for the cost control. Financial accounts do not help in fixing the responsibility of any individual for any wastage or excessive cost.
10. Financial Accounts deals with the overall profitability of business:- Financial Accounts represents the overall profits or loss of business. But it does not reveal profit or loss as the product wise, job wise, Process wise and department wise of the business. So unprofitable units are not disclosed by the financial accounts. So necessary action cannot be taken by the management. What are the limitations of financial Accounting
11. No Provision for Comparison of Costs:- Financial accounts only able to compare overall costs of business with the different account period. But it is not able to provide particular job comparisons for different periods. So management is unable to make the correct business decisions.
12. No assistance for planning and decision making:- Financial accounts do not provide any evaluation of profitability throughout the alternative methods of production. It cannot provide an appropriate selection of the most profitable product mix or sales mix. It also does not provide manufacturing or buy decisions as well as operate or shut down decisions. Determination of sales for desired profits. Information about break even point and margin of safety is not provided by financial accounts. What are the limitations of financial Accounting

Conclusion:- Financial accounts is the first account of business which is essential to be prepared by the business to ascertain the overall profits as well as taxes of the business. It has many advantages which are helpful to the business. But it has some limitations which are shown to be lacking for the business. Due to which business has to depend on the existing cost accounts. Because the financial account does not provide the entire essential data to the management. What are the limitations of financial Accounting

There are some important limitations of financial accounts. Which are as follows. What are the limitations of financial Accounting

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