Major drawbacks or limitations of financial accounting can be studied as follows:
1. No Provision For Detailed Cost Information
It is one of the main weaknesses financial accounting that it cannot provide detail cost information regarding products, production process, operation, departments etc. Only cost information about assets, liabilities, expenses and income can be obtained from financial accounting. So, it is difficult to evaluate the performance of different units and departments of the organization.
2. No Cost Segregation
There is no provision of segregation of costs in financial accounting. It does not classify the costs in terms of nature and behavior. Financial accounting treats costs only in terms of capital and revenue.
3. Not Helpful In Pricing
There is no role of financial accounting in price determination of the products because it does not provide manufacturing cost of certain product.
4. No Cost Control Mechanism
Financial accounting lacks cost controlling mechanism. It does not provide any suggestion in cost control and cost reduction procedure of the organization.
5. No Information About Loss
Financial accounting cannot report losses occurred because of seasonal fluctuation, idle plant, stoppage etc.
Also Read:
Also Read:
6. Historical Data
Financial accounting concerns with past financial data only. So, it does not help to predict future financial situation of the company.
Financial accounting lacks proper system to judge and monitor effective use of materials, labor and overheads in the business operation. So, it is not helpful for performance evaluation.
8. Not Suitable For Decision Making
Financial accounting cannot provide detailed cost information to the management. It only deals with day-to-day transactions and past data only. So, it is not suitable for the management for decision making and future planning purpose.
9. Not Suitable For Small Business
Financial accounting is expensive and time consuming. It requires qualified personnel with specific accounting knowledge to maintain the financial records. So, it is not suitable for small business firms with lower volume of transactions.
