Functions and limitations of accounting
Functions of accounting
The functions of accounting are:
The first function of accounting is to manage the resources held by specific entities.
Reflection of Claims
Its purpose is to reflect the claims on business.
Measurement of Changes
Its purpose is also to measure the level of changes in the claims against the business.
Division of Specific Periods
Another purpose of Accounting is to divide the change on to specifiable periods of time.
Expansion in terms of money
Last but not least to express the above in terms of money as a common denominator is also an important function of Accounting.
Limitations of accounting
- Accounting does not reflect the current financial position of the business as it is historical in nature.
- In accounting, the financial statement profit & loss account has a tendency to match the current revenues with historical costs and not with current expenses.
- Inflation is not considered in accounting statements.
- Accounting statements do not always provide comparable data because accounting
principles are not static.
- Increase in net assets value which is not considered to be realized are not reflected by
profit & loss account.