Answer to Question #123906 in Accounting for Karan

Question

Write a short note on objective and limitations of accounting

Answer 1

Accounting is objectified at the maintenance of systematic and complete records for the economic transactions and the financial position of an entity. In this regard,, the core objectives of accounting revolve around:

a) The identification and recording of all financial transactions.

b) Ascertaining results at the end of trading period

c) Keeping the cash accounts from the cash received and the cash paid

d) Ascertaining the financial affairs of an enterprise in terms of assets, debts, and equity.

All the measures assist the accountants and managers in planning and making future decisions in regard to the performance and position of the firm.

Despite the strengths borne by accounting, it has some drawbacks that include:

a) Its over-reliance on the monetary items and assumption of the items without monetary values

b) The values used in accounting are mostly historical while the users of financial information are interested with futuristic information. It infers that the information rendered is not useful.

c) Most of the variables used in accounting rely on the management's assumption and discretion and may not necessarily reflect the actual values, for instance, depreciation methods and the provision for doubtful debts.

d) The financial information is restricted by the accounting principles which infers that it cannot always be free and fair due to the different assumptions.