Financial Accounting and Its Limitations

Topics: Balance sheet, Income statement, Asset Pages: 4 (1175 words) Published: April 27, 2012
What are the major limitations of Financial Accounting? Explain with the help of Examples. What are the alternatives to overcome these limitations?

Financial accounting can be defined as reporting of the financial position and performance of a firm through financial statements issued to the external users on a periodic basis. It is a field of finance that treats money as a means of measuring economic performance instead of treating it as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of the organization in terms of assets and liabilities, and revenues and expenses. Financial accounting gathers and summarizes financial data to prepare various financial reports such as balance sheets and income statements for the organization’s management, investors, lenders, suppliers, tax auditors and various other shareholders. Financial accounting is focused on providing accounting reports and analysis to the other areas of business. Financial accounts area responsible for the creation and issuing of the company’s financial statements; providing accurate and opportune information to the management and hence ensuring that all regulatory reporting requirements are met. In financial accounting, the goal is to consistently provide the valuable, accurate and reliable information. The financial statements summarize the business activities and working for the year and are used by the shareholders, bankers, employees, various bargaining units and the general public to evaluate the financial worth of the company. The issuing of these statements is the responsibility of the financial department. Independent auditors audit the statements; who validate the information and provide accurate statements to the readers. A cash flow report provides details on the funds received and distributed. The statement of owners or shareholders equity shows the total net income from the year and how it will be distributed among...
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