What do you mean by Financial Accounting? Explain the four main limitations of Financial Accounting.

What do you mean by Financial Accounting? Explain the four main limita

1.	What do you mean by Financial Accounting? Explain the four main limitations of Financial Accounting.
Answer» Meaning - Financial accounting is significant for management as it helps them to control the firm activities and in determining appropriate managerial policies in different areas production, sales, administration, finance etc. However, financial accounting does not provide adequate and useful information. Most of limitations are mainly due to the cumulative effect of recorded facts, accounting conventions and personal judgments on financial statements. limitations of Financial 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 management reputation, employee morale, labour strike etc. 2. Cost concept is found in accounting. Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting. 3. Acceptable alternatives are so broad based that comparisons are likely to be confusing or misleading. For instance, inventory cost may be ascertained by LIFO or FIFO; or stock may be evaluated at cost price or market price. 4. 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.