Functions and Limitations of Accounting

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 27, 2023

Functions of Accounting

The functions of accounting are:

Managing Resources

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 the 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 into specifiable periods of time.

Expansion in Terms of Money

Expressing the above in terms of money as a common denominator is also an important function of accounting.

Limitations of Accounting

The main limitations of accounting:

  • Accounting is historical in nature, meaning that it does not reflect the current financial position of the business
  • Inflation is not considered in accounting statements
  • Accounting statements do not always provide comparable data because accounting principles are not static
  • An increase in the value of net assets that is not considered to be realized is not reflected in the profit and loss account

Functions and Limitations of Accounting FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.