Limitations Of Financial Accounting - Entrepreneur Generations

Major drawbacks or limitations of financial accounting can be expressed as follows:

1. No Provision For Cost Information

Financial accounting does not provide detailed cost information of units, departments, and processes, which are vital for the firm's performance evaluation.

2. No Segregation Of Cost

Financial accounting does not segregate costs in terms of their behavior, nor does it make classification in terms of nature of cost such as such as direct and indirect costs. Segregation of cost by nature and behavior are necessary for controlling costs and identifying responsibilities thereof.

3. No Price Determination

Pricing of products and services under financial accounting system is virtually not possible.

4. No Provision For Standards

Effective use of materials, labor and overheads normally requires a system of standards. Financial accounting does not provide an appropriate system of standards needed for the performance evaluation of workers and operations.

5. No Cost Control

Financial accounting does not have cost control mechanism for controlling material and labor costs.

6. No Reporting On Losses

Financial accounting does not explain the losses arising because of stoppage of production and idle plant condition.

7. No Provision For Feed Forward

Financial accounting is based on historical data and it is therefore not possible to make feed forward of relevant information needed for most managerial decision making.

from Accounting-Management http://ift.tt/2k1bIhI Limitations Of Financial Accounting - Entrepreneur Generations

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