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Chapter: 12th Accountancy : Chapter 1 : Accounts from Incomplete Records

Limitations of incomplete records

Following are the limitations of incomplete records:

Limitations of incomplete records

Following are the limitations of incomplete records:

Lack of proper maintenance of records: It is an unscientific and unsystematic way of maintaining records. Real and nominal accounts are not maintained properly.

Difficulty in preparing trial balance: As accounts are not maintained for all items, the accounting records are incomplete. Hence, it is difficult to prepare trial balance to check the arithmetical accuracy of the accounts.

Difficulty in ascertaining true profitability of the business: Profit is found out based on available information and estimates. Hence, it is difficult to ascertain true profit as the trading and profit and loss account cannot be prepared with accuracy.

Difficulty in ascertaining financial position: In general, only the estimated values of assets and liabilities are available from incomplete records. Hence, it is difficult to ascertain true and fair view of state of affairs or financial position as on a particular date.

Errors and frauds cannot be detected easily: As only partial records are available, it may not be possible to have internal checks in maintaining accounts to detect errors and frauds.

Unacceptable to government and other authorities: As accounts maintained are incomplete, these may not comply with the legal requirements. Hence, government, tax authorities and other legal authorities do not accept accounts prepared from incomplete records.

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