Notable limitations of cost accounting system can be expressed as follows:
1. Lack Of Fixed Principles
Generally, cost accounting system is practiced on presumed notions. It does not follow fixed accounting principles. So, there is a lack of uniformity in this system.
2. Costly System
This is another major drawback of cost accounting. There is a need of highly skilled and qualified manpower and resources to maintain cost accounting system in the organization. A lot of clerical works and various procedure make cost accounting more expensive.
3. Complex System
It is very complicated system of accounting. It requires various formulas to record cost related data. It needs specific knowledge to prepare different reports. Due to numerous steps and rules, it is considered as complex system of accounting.
4. Not Suitable For Small Business
Small business firms with less number of production or transactions do not prefer cost accounting because of higher cost and complexity.
5. Ignores Financial Items
Actual profit or loss of the business cannot be ascertained by cost accounting because it ignores income and expenses of financial nature.
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6. Lack Of Accuracy
Cost accounting avoids financial character expenses at the time of cost calculation. It does not follow double entry system to check the accuracy. So, result obtained from cost accounting may lack accuracy.
7. Not Helpful In Decision Making
Only cost related past data and information can be obtained from cost accounting. So, top level management cannot be benefited from cost accounting to make future decision and plans. Delay in data and information may also hamper decision making process.
8. Dependent
Cost accounting cannot be installed and maintained without other accounting system. It is totally dependent with other branches of accounting, especially with financial accounting.
