Accounting plays important and useful role by developing the information
for providing answers to may questions faced by the uses of accounting
information.
1. How good or bad is the financial condition of the business ? .
2. How the business activity resulted in a profit or loss ?
3. How will the different departments of the business have performed in
the past?
Which activities has been profitable ?
5. Out of the existing products which should be discontinued end the production of which common should be increased ?
6. Whether to buy a component from the market ?
7. Above mentioned are two examples of the types of questions faced by
the users of accounting infonnation. There can be satisfactorily answered with
the help of suitable and necessary information provided by accounting.
Besides, accounting is also useful in the following respects :
(a) Increased volume of business results in large number of transactions
and no business man can remembers everything. Accounting records obviate
the necessity of remembering various transaction.
(b) Accounting record, prepared on the basis of uniform practices will
enable a business to compare results of ore period with another period.
(c) Taxation authorities both income tax and sales tax are likely to believe
the facts contained in the set of accounting books. If maintained according to
generally accepted accounting principles.
(d) Accounting records, backed up by proper and authenticated vouchers
are good evidence in a court of law.
(e) If a business is to be sold as a going concern then the values of different
assets as shown by the balance sheet helps in bargaining proper price for the
business. Limitations of financial accounting.
1. Financial accounting does not provide detailed analysis. The information
supplied by the financial accounting is in reality aggregates of the financial
transactions during the course of the year of course it enables to study the
overall results oftlie business activity during the accounting period.
2. Financial accounting does not disclose the present value of the business.
3. Financial accounting does not provides timely information. Financial
accounting is designed to supply informadon in the form of statements. Balance
shut and profit loss account for a period and normally one year.,
4. Financial accounting ignores important non-monetary information that
means financial accounting takes into consideration only those transactions
and events which can be described in money.
5. Financial accounting is inHuenced by personal judgements.
6. Financial accounting permits alternative treatments.
