Q."Accounting is useful, but it has limitations." Explain any four limitations of accounting.

Accounting is powerful but not a complete picture of a business — the syllabus expects students to be able to name its real limitations, not just its advantages. …

1. Records only monetary transactions. Important but non-monetary facts — the efficiency of the workforce, employee morale, or the launch of a rival's better product — never appear in the accounts even though they affect the business's future.

2. Based on historical cost. Fixed assets are normally shown at what they originally cost, not at their current market value, so the Balance Sheet does not tell a reader what the business's assets would fetch or cost to replace today.

3. Permits alternative accounting treatments. Two equally acceptable methods — Straight Line vs Written Down Value depreciation, or FIFO vs Weighted Average for stock valuation — applied to identical facts can produce different profit figures, which weakens comparability between two similar businesses. …

Listing 'advantages' by mistake instead of limitations, or giving only one limitation in detail …