Advantage and Limitation of Accountancy

Advantages Of Accounting

1. It provides information which is useful to management for making economics decision.

2.  It help owners to compare one year's results with those of other year to know the factors which leads to changes.

3. It provide information about the financial position of the business by means of balance sheet which shows assets on one side and capital & liabilities on the other side.

4. It help in keeping systematic and complete record of business transactions in the books of accounts accarding to specified principles and rules, which is accepted by the courts as evidence.

5. It helps a firm in the assessment of its correct tax liabilities such as income tax, sales tax, vat, excise duty etc.

6. Properly maintained accounts help a business entity in determining its proper purchase price

Limitations Of Accounting.

1. It is historical in nature, it does not reflect the current worth of a business. Moreover, the figures given in financial statements ignore the effects of changes in price level

2. It contain only those information's which can be expressed in terms of money. It ignore qualitative elements such as efficiency of management, quality of staff, customers satisfaction etc.

3. It may be affected by window dressing i.e. manipulation in accounts to present a more favourable position of a business firm than its actual position.

4. It is not free from personal bias and personal judgrnent of the people dealing with it for example different peaple have different opinions regarding life of asset for calculating depreciation, provision for doubtful debts etc.

5. It is based on various concepts and conventions which may hamper the disclosure of realistic financial position of a business firm. For example assets in balance sheet are shown cost and not at their market value which could be realized on their sale.