What Are Its Limitations?

1.	What Are Its Limitations?
Answer» Accounting information is expressed in terms of money. Non monetary events or transactions, however important, are completely OMITTED. Fixed assets are recorded in the accounting records at the original cost, that is, the actual amount SPENT on them plus all incidental charges. In this way the effect of inflation (or deflation) is not taken into consideration. Accounting information is sometimes based on estimates; estimates are OFTEN inaccurate. Accounting information cannot be used as the only test of managerial performance on the basis of more profits. Accounting information is not neutral or unbiased. Accountants calculate income as excess of REVENUES over expenses. But they consider only SELECTED revenues and expenses.

Answer»

Accounting information is expressed in terms of money. Non monetary events or transactions, however important, are completely OMITTED.
Fixed assets are recorded in the accounting records at the original cost, that is, the actual amount SPENT on them plus all incidental charges. In this way the effect of inflation (or deflation) is not taken into consideration.
Accounting information is sometimes based on estimates; estimates are OFTEN inaccurate.
Accounting information cannot be used as the only test of managerial performance on the basis of more profits.
Accounting information is not neutral or unbiased. Accountants calculate income as excess of REVENUES over expenses. But they consider only SELECTED revenues and expenses.

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