Accounting is a profession that involves the assumptions, principles, ideas, and regulations guiding the art of evaluating and classifying financial businesses. On the other hand, accountancy is simply the application and science of accounting. The profession is a broad one that constitutes different branches combined to meet the ever teeming demands of various parties such as management, companies owners, taxation management, creditors, and so on. Financial accounting has multiple functions and some limitation, read to discover them.
1. Help to calculate the profit or loss of a company
2. It helps an organization to ascertain their financial status
3. It helps to measure an organizationâ€™s department past records hence helping to measure and ascertain their rate of growth.
4. Through accounting, firms are able to deduce the performance of their various products or services
5. Sometimes companies like to offer bonuses and discounts, so to enable this is done without harming their growth, accountant perform analysis on various products and services to confirm the economy of such operations
6. Accountants operations also help to workout which among the existing products should be terminated and which must be increased.
7. It determines the need to by a component or manufacture a new one
8. Is the cost of producing a particular product reasonable or unreasonable
9. The influence of obtainable policies and how it has profit he business
10. It examines the result of latest policies choices on upcoming income capacity of the business
11. It boosts the number of business outcomes in large amount of transaction that business isnâ€™t able to recollect. Therefore, accounting records avert the obligation of recollecting different business operations.
12. It aids the ability of businesses to compare outcomes of one period with another.
One of the limitations of accounting is that it does not provide On-Demand information and that is because it only works on recorded transactions. Secondly, it is created to offer information in the form of statements for a certain time period, mostly one year. Thirdly, financial accounting pay no attention to vital non-financial information; Therefore, the outcome of financial accounting practice is bias because it does not take the totality of a company operations into accountability.
Accounting is a very important professional that focuses on the financial aspect of a company. It helps to analyze and classify a companyâ€™s financial record leading to multiple benefits; however, despite its multiple functions, it also has its share of limitations.