There is no doubt that every business prepares balance sheet at the end of each accounting period yet it suffers from the following limitations:
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- Some of the current assets are valued on estimated basis, so the Balance sheet is not in a position to reflect the true financial position of the business.
- Fixed assets are shown in the Balance sheet at original cost less depreciation up-to-date. Thus Balance sheet does not show true value of assets.
- Balance sheet can not reflect those assets which cannot be expressed in monetary terms such as skill, honesty and loyalty of workers.
- Intangible assets like goodwill are shown in the Balance Sheet at imaginary figures which may bear no relationship to the market value.