The main drawbacks or limitations of accounting can be highlighted as follows:
1. Ignores Non-monetary Items
Accounting records only monetary items (that can be measured in terms of money) and ignores non-monetary items (cannot be measured in terms of money) such as employee morale, loyalty, management efficiency etc. that play important role in success or failure of business.
2. Past Data
Generally, accounting uses past or historical financial data and information. It ignores some key factors like price level change and inflation. So, it may fail to show actual financial strength or weakness of the firm.
Several accounting treatments are based on personal judgment and estimates. So, there exists a chance of manipulation of data and commitment of frauds.
4. Several Alternatives
There are different methods of stock valuation, depreciation, capital budgeting decision, amortization of assets etc.. Several alternatives may create complexity and confusion.
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5. Lack Of Secrecy
It is very difficult to maintain secrecy of accounting data and information because of several users.
6. Difficulty In International Trade
Different accounting standards and methods may create difficulty in international trade.
