c.To know the financial position of a firm at the close of thefinancial year by way of preparing the balance sheetd.To facilitate management control.e.To assess the taxable income and the sales tax liability.f.To provide requisite information to different parties, i.e., owners,creditors, employees, management, Government, investors,financial institutions, banks etc.Accounting suffers from the following limitations:i.Accounting information is expressed in terms of money. Nonmonetary events or transactions, however important, arecompletely omitted.ii.Fixed assets are recorded in the accounting records at theoriginal cost, that is, the actual amount spent on them plus allincidental charges. In this way the effect of inflation (ordeflation) is not taken into consideration. The direct result of thispractice is that balance sheet does not represent the truefinancial position of the business.iii.Accounting information is sometimes based on estimates;estimates are often inaccurate.
iv.
Accounting information cannot be used as the only testofmanagerial performance on the basis of more profits. Profit fora period of one year can readily be manipulated by omitting suchcosts as advertisement, research and development, depreciationand so on.v.Accounting information is not neutral or unbiased. Accountantscalculate income as excess of revenues over expenses. But theyconsider only selected revenues and expenses. They do not, forexample, include, cost of such items as water or air pollution,employee’s injuries, etc.Accounting like any other discipline has to follow certain principles,which in certain cases are contradictory. For example current assets(e.g., stock of goods) are valued on the basis of cost or market pricewhichever is less following the principle of conservatism. Accordinglythe current assets may be valued on cost basis in some year and atmarket price in another year. In this manner, the rule of consistency isnot followed regularly.
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