The following are the limitations of accounting:
1. Does not record all events:
Only financial transactions are recorded.
2. Does not reflect current values:
The data available under book-keeping is historical in nature. So they do not reflect current values.
3. Estimates based on Personal judgment:
The estimates used for determining the values of various items may not be correct. For example, debtors are estimated in terms of collectability, inventories are based on marketability, and fixed assets are based on useful working life. These estimates are based on personal judgment and hence sometimes may not be correct.
4. Inadequate information on costs and Profits:
Book-keeping only provides information about the overall profitability of the business. No information is given about the cost and profitability of different activities of products or divisions.
