Limitations of Financial Accountancy

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Following are the limitation of financial accountancy are:
• Financial accountancy permits alternative treatments Accounting is based on concepts and it follows “generally accepted principles” but there exist more than one principle for the treatment of any one item. This permits alternative treatments within the framework of generally accepted principles. For example, the closing stock of a business may be valued by anyone of the following methods: FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc., but the results are not comparable.
• Financial managerial accounting does not provide timely information
• It is not a limitation when high powered software application like HiTech Financial Accenting are used to keep online and concurrent accounts where the balance sheet is made available almost instantaneously. However, manual accounting does have this shortcoming.
• Financial accounting is designed to supply information in the form of statements (Balance Sheet and Profit and Loss Account) for a period normally one year. So the information is, at best, of historical interest and only ‘post-mortem’ analysis of the past can be conducted.
• Traditionally, financial accounting is not supposed to supply information at shorter interval less than one year. With the advent of computerized accounting now a software like HiTech Financial Accounting displays monthly profit and loss account and balance sheet to overcome this limitation.