Limitations of Financial Accounting

There are certain limitations in the financial accounting due to which most of the accounting professionals switched to the cost accounting. The first and the foremost limitation of the financial accounting is that it is inadequate and inefficient in terms of the information required by the accounting personals to conduct accounting practices within the business. The summary of the limitations of the financial accounting can be described as under:-

• Financial accounting shows only the overall performance and overall information of the financial condition of the business. It gives the picture of profit and loss as a whole instead of giving a detailed picture of the financial condition of the business.
• The nature of the financial accounting is historical in nature. This means that the data and all the information are summarized to get results at the end of a specific accounting period. Financial accounting doesn’t support a day to day computing system.
• Financial accounting doesn’t support any appraisal system that means there is no system to evaluate the performance and to calculate the efficiency regarding the use of different materials.
• In financial accounting there is no specific control system to control the use of materials and use of labor for manufacturing and production
• In financial accounting cost cannot be classified into different categories and types as it is done in the cost accounting system
• Another limitation of the financial accounting is that it doesn’t have any control over the calculation of losses. This type of accounting system cannot calculate the losses that incur due to idle time, idle plant, idle labor, inefficient labor and sub-standard materials usage
• In financial accounting there is no aid to find out or to get an estimation of the cost of product that is manufactured by the company
• In financial accounting there is no comparison among the costs.

Other Related Accounting Articles:

• Profit and Loss Statement
• Accounting Noise
• Direct Labor Idle Time Variance
• Direct Labor Efficiency Variance
• The Equity Method of Joint Venture Accounting
• Accounting System
• Tangible Common Equity
• Computerized Accounting
• Over leveraged
• Definition and Explanation of Accounting