How to reduce the limitations in financial accounting?



FINANCIAL ACCOUNTING AND REPORTING SKILLS

Financial reporting can be defined as financial information about performance of company over a specific period of time that be disclosure to the management and the public (if company is publicly traded). These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement.

Financial reporting occurs through the use of financial statements. The financial statements present the five main classifications of financial data: revenues, expenses, assets, liabilities and equity. Revenues and expenses are accounted for and reported on the income statement. Financial accounting results in the determination of net income at the bottom of the income statement. Assets, liabilities and equity accounts are reported on the balance sheet. The balance sheet utilizes financial accounting to report ownership of the future economic benefits of the 
company.


There are limitations in financial accounting as below:-

(a) Financial accounting permits alternative treatments

For example, the closing stock of a business may be valued by any one of the following methods : FIFO (First-in-first-out); LIFO (Last-in-first-out); Average price, Standard price etc. Application of different methods will give different results but the methods are generally accepted. So, the results are not comparable.

(b) Financial accounting is influenced by personal judgements

For example, in order to determine the amount of depreciation to be charged every year for the use of fixed asset it is required to estimate (a) future life of the asset, and (b) scrap value of the asset. Thus in accounting we do not determine but measure the income. In other words, the income disclosed by accounting is not authoritative but approximation.

(c) Financial accounting ignores important non-monetary information

For example, extent of competition faced by the business, technical innovations possessed by the business, loyalty and efficiency of the employees 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.

(d) Financial accounting does not provide timely information

For example, if a business has budgeted that during the current year sales should be RM 12,00,000 then it requires information – whether the sales in the first month of the year amounted to RM 1,00,000 or less or more? Traditionally, financial accounting is not supposed to supply information at shorter intervals than one year.

(e) Financial accounting does not provide detailed analysis

For example, if a business has earned a total profit of, say, RM 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.

(f) Financial accounting does not disclose the present value of the business

In balance sheet the assets are shown on the basis of going concern 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 today can't be known by studying the balance sheet.

So, by attending our training course, you are able to:-
  1. COMPREHENSING FINANCIAL STATEMENTS
  2. DO CLASSIFICATION OF EXPENSES AND COST CENTRES
  3. CLASSIFY ASSETS, LIABILITIES, EQUITY, INCOME AND EXPENSES
  4. DO PLANNING AND PROJECTION FOR CASH FLOW STATEMENT
  5. ANALYZE FINANCIAL
  6. PLANNING CORPORATE FINANCIAL & BUDGETS
  7. LEARN SKILLS TO PREPARE FINANCIAL REPORTING


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