Limitations Of Cost Accounting - Entrepreneur Generations

Major drawbacks or limitations of cost accounting system are as follows:

1. No Fixed Principles

Cost accounting does not follow fixed procedure and principles. Most business organizations practice cost accounting on presumed notions.

2. Very Expensive

It requires more resources, manpower and money to maintain proper cost accounting system in the organization. Small business business firms cannot maintain this system of accounting.

3. Exclusion Of Financial Items

Income and expenses of purely financial character are avoided by cost accounting system. So, profit and loss account does not show actual profit or loss of the firm.

4. Complex System

Complexity is another main drawback of cost accounting system. Due to various types of expenses, rules, number of steps and procedure it is very complex accounting system.

5. Lack Of Accuracy

It ignores proper principles and procedure. So, data obtained by cost accounting may not be accurate and verifiable. 

6. May Not Assist In Decision Making

Cost accounting system provides only past cost data and information to the management. So, it may not be useful in decision making for future purpose. Delay in data and information also hampers in the decision making process.

7. Dependent

Cost accounting cannot perform well without the support of other accounting system. So, it is dependent with other branches of accounting system.

8. Not Suitable For All Types Of Business

It is expensive and complex method of accounting system. So, small business prefers traditional accounting system rather than cost accounting system.

from Accounting-Management http://ift.tt/2i4eF0h Limitations Of Cost Accounting - Entrepreneur Generations

Posted by Entrepreneur Generations

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