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What are the main limitations of Balance Sheet?

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.
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