The Limitation of Financial Accounting.
The following are the important limitations of financial accounting:
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- No detailed cost information: Financial accounting does not provide detailed information for each product, process, job or operation.It only provides information regarding income and expenditure, assets an liability of the organization on a particular date.
- No classification of cost: Financial accounting does not classify cost into direct and indirect, fixed & variable, controllable, uncontrollable, normal and abnormal cost etc. It only divides expenditure in to two categories as Capital and Revenue.
- No helpful in price fixation: Financial accounting does not provide adequate information for fixation of selling prices of the product produced or services rendered by the business. It is not also able to prepare tender or quotations.
- No control on cost: Financial accounting does not provide proper system of controlling to various elements of cost, that is material labor and expenses. Cost control procedure can be adopted by setting standards, but it lacks in financial accounting.
Submitted to RB by Ravi Assar