Explain any five limitations of Accounting.

Accounting has many advantages but it has some limitations also:

1. Accounting is not fully exact / Influenced by personal judgment – Although most of the transactions are recorded on exact basis but some estimations are also made for calculating profit or loss. These estimations may be different from person to person and make the accounting results different.
2. Accounting ignores qualitative elements – Accounting contains only the monetary aspects and qualitative aspects like quality of management and labour etc. are ignored. These qualitative elements have a vital bearing on the profitability of the business.
3. Ignores price level change – Accounting ignores the effect of changes in price level which makes comparison of different years difficult.
4. Accounting may lead to window dressing – Some firms may manipulate the accounts to show a better financial position.
5. Based on historical cost – Assets are recorded at cost price and not at current market value which may be misleading.