Limitations of Financial AccountingAdvantages of accounting discussed
in this section do not suggest that accounting is free from limitations.
Following are the
limitations:
Financial accounting permits alternative treatmentsAccounting is based on
concepts and it follows " generally accepted principles" but there exist more
than one principle for the treatment of any one item. This permits alternative
treatments with in the framework of generally accepted principles. For example,
the closing stock of a business may be valued by anyone of the following
methods: FIFO (First-in- First-out) ,LIFO (Last-in-First-out) ,Average
Price ,Standard Price etc., but the results are not
comparable.
Financial accounting is influenced by personal judgments'Convention of objectivity' is
respected in accounting but to record certain events estimates have to be made
which requires personal judgment. It is very difficult to expect accuracy in
future estimates and objectivity suffers. For example, in order to determine the
amount of depreciation to be charged every year for the use of fixed asset it is
required estimation and the income disclosed by accounting is not authoritative
but 'approximation'.
Financial accounting ignores important non-monetary informationFinancial accounting does not
consider those transactions of non- monetary in nature. For example, extent of
competition faced by the business, technical innovations possessed by the
business, loyalty and efficiency of the employees; changes in the value of money
etc. are the important matters in which management of the business is highly
interested but accounting is not tailored to take note of such matters. Thus any
user of financial information is, naturally, deprived of vital information which
is of non-monetary character. In modern times a good accounting software with
MIS and CRM can be most useful to overcome this
limitation partially.
Financial accounting does not provide timely informationFinancial accounting is designed to
supply information in the form of statements (Balance Sheet and Profit and Loss
Account) for a period normally one year. So the information is, at best, of
historical interest and only 'post-mortem' analysis of the past can be
conducted. The business requires timely information at frequent intervals to
enable the management to plan and take corrective action. For example, if a
business has budgeted that during the current year sales should be Rs. 12,00,000
then it requires information whether the sales in the first month of the year
amounted to Rs. 10,00,000 or less or more? Traditionally, financial accounting
is not supposed to supply information at shorter interval less
than one year. With the advent of computerized accounting now a software
like HiTech Financial Accounting displays monthly profit and loss account and
balance sheet to overcome this limitation.
Financial Accounting does not provide detailed analysisThe 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 of the business the information is required regarding the cost, revenue
and profit of each product but financial accounting does not provide such
detailed information product- wise. For example, if business has earned a total
profit of say, Rs. 5,00,000 during the accounting year and it sells three
products namely petrol. diesel and mobile oil and wants to know profit earned by
each product Financial accounting is not likely to help him unless he uses a
computerized accounting system capable of handling such complex queries. Many
reports in a computer accounting software like HiTech Financial Accounting which
are explained with graphs and customized reports as per need of the business
overcome this limitation.
Financial Accounting does not disclose the present value of the businessIn financial accounting the
position of the business as on a particular date is shown by a statement known
as 'Balance Sheet'. In Balance Sheet the assets are shown on the basis of
"Continuing Entity Concept. Thus it is presumed that business has relatively
longer life and will continue to exist indefinitely, hence the asset values are
'going concern values.' The 'realized value' of each asset if sold to-day can't
be known by studying the balance sheet.
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Note for International VAT USers and GST Users in India
Many business use services of Tax Consultants and Chartered Accountants for filing the Tax Return and the tax return of the software is not used. To assist such activity you can export all reports from the software to MS Excel or MS Word and submit it to your tax adviser for financial figures for the business . The software will perform all Inventory Control, Vouchers, Nominal Ledger Accounts along with Working/Trading and Profit & Loss account that will give you all figures ready for export for filing Tax Return. As soon as you are sure about the changes you want in the visual interface and printing regarding your GST requirements we will modify the software software as per your GST requirements. To get any of the off-the-shelf software modified for visual interface and printing please Contact Us Now. We will carry out all required customization for GST as per your requirements in the existing software in professional and timely manner . For any required customization as per GST in any of the off-the-shelf software, please contact us now. We will carry out required customization for GST as per your requirements in the existing software at nominal additional charges. Give us details of required customization for a man-hour or work estimate. For official reference to GST refer to following links:GST (Goods and Service Tax) Circular by Central Board of Excise and Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India. Finance Act 2016 of Government of India HSN codes for Goods and Service Tax (GST) in India Central Board of Excise and Customs - HSN Codes Circular by CBEC, Government of India - About HSN Codes.
Central Goods and Services Tax (CGST) Rules, 2017 Draft government Approved Format Under Goods and Services Tax - Invoice Rules What is GST Compliant Business? What are the specific mandatory fields in an GST compliant invoice? Why the invoice an important financial instrument? What are Registered and Un-Registered Dealers? There is a lot for your business to catch up on those links along with online tax filing and registration for trading. Give us the details of required work you want in the off-the-shelf VAT accounting system and we shall make it GST compliant invoicing and accounting for your business at nominal additional charges. Cheers. Happy Accounting. If you want to know the details of for making VAT/CST system compliant to GST system: Standard rate of $15 per man hour shall be applicable for making any of off-the-shelf VAT based accounting software systems into CGST/SGST Compliant Accounting. Give the details of customization required in any of our off-the-shelf VAT accounting systems made for various business to get a quote of additional charges. See demo of software on website. See official Indian Government CGST/SGST Specification on the panel above here. Click for more information on Value Added Tax (VAT). Free Download of Full Featured Software - Try Full Featured Software Before Order - Time Limited 30 days Full Featured Version of these software are available for download from our website www.freeaccounting.in. HiTech Billing, Accounting Software Off-the-Shelf versions are available for Business, Traders, Industry, Hospital, Hotel, Petrol Pump, Medical Store & Distributor, Automobile or Motorcycle Dealers, Newspaper or Magazine Publishers, VAT Accounting & Billing and Commodity Brokers. | ||||||
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