Reasons of Incompleteness and Its Limitations

Many businessmen deliberately keep incomplete records for the following reasons:

• (a) The system can be used by people who do not have proper knowledge of accounting principles.
• (b) It is an inexpensive way of maintaining records, since specialised accountants need not be appointed.
• (c) It takes less time, as only a few books are kept.
• (d) It is convenient — the owner records only the transactions that matter to the business.

Limitations. Because of its very nature, the mechanism of incomplete records suffers from

serious limitations, and unless a systematic approach is followed, reliable financial statements

cannot be prepared:

• (a) As double entry is not followed, a trial balance cannot be prepared and the arithmetical accuracy of the accounts cannot be checked.
• (b) The financial result of the business cannot be correctly ascertained and evaluated.
• (c) The profitability, liquidity and solvency of the business cannot be analysed, which makes it harder to raise funds from outsiders and to plan future activity. …