In today’s article, we will know about the Advantages and Limitations of Financial Accounting. what are the advantages of accounting, so read today’s article completely so that you understand about the advantages of accounting.
Advantages of Financial Accounting
1. Provide complete and systematic records
The first advantage or advantage of accounting in any business or company is that they provide us with complete and systematic records.
Transactions are so many in any business that it is not possible to remember all the transactions, thus all the transactions taking place are kept date wise record in a systematic way so that the business is taking place. The profit or loss can be known and a summary form is also prepared so that the true picture of the business can be shown.
2. Replace memory
Another advantage of accounting is that when all these transactions are recorded time to time and date wise in a systematic way, then there is no need to remember it.
In this way, there are many transactions in a day, such as making the same purchase and then selling it to different customers, getting money from someone who has already sold on credit, or buying goods from a supplier, giving his money. have done any advertisement, its expenditure, to pay salary to someone etc. Many such transactions are done, in this way we do not need to remember them.
3. Information regarding profit and loss
When accounting is done in business, all the transactions are recorded, Trading And Profit and Loss Account is prepared in which the purchase, sale and daily expenses or expenses of the business are shown and an accounting period which is It is a year, after its end, the information about how much profit (gain) was made or how much loss was done in the business.
All this information is very useful for the owner of the business and other interested parties as well.
4. Information regarding financial position
How much profit did you make in business by creating a Profit and Loss Account? How much damage was done? Its information is available.
Now after this a Balance Sheet is created, in which one side shows all the assets and its value of the business and on the other side its Capital and all the Liabilities are shown. In this way, this Balance Sheet shows the financial position of the business.
5. Helpful in management
The management of any business in which there are authorities or users who manage all the activities of the business and also take important decisions, then they need a lot of information to run the business smoothly.
In this way, all this information is provided to the management through different reports through accounting, with the help of which they do planning and also take decisions.
6. Comparative study
An advantage of accounting is that by keeping all kinds of records systematic, date wise and in proper head, the business owner can compare the coming cost, expenses, profit and sales of one year with the previous year’s report.
Limitations of Financial Accounting
Some of the major limitations of accounting are as follows:
1. Lack of a complete collection of principles
One of the biggest drawbacks of accounting principles is that there is no complete collection or list of its principles.
2. Post-mortem examination
Financial accounting presents post-mortem analysis (i.e. is for past problems). It ignores future plans.
3. Lack of consensus on principles
Whatever the principles of accounting, not all accountants agree on many of the principles. The principles of accounting are ‘generally accepted principles.
4. Difference in adherence to principles
There are many differences in the adherence to the principles of accounting. As a result, results vary and comparisons are difficult.
5. Accounting of monetary facts only
In accounting, only those events and facts are recorded which can be expressed in terms of money. Therefore, any event, no matter how important it is to the business, is not possible in the books of account until its monetary measurement is not done.
6. Presenting a picture of a limited period
Accounting presents a picture of a limited period only. For example, profit and loss account for a certain period or balance sheet of a certain date.
7. Lack of explanatory statement
There is also lack of analytical details in accounting, due to which it is difficult to determine the increased profitability of the enterprise.
8 Not being able to tell the actual value
In accounting, the recording of assets is done at its cost value. Hence, it does not present the net value of the business i.e. does not tell the actual value.