Q. Explain the Limitations of Financial Accounting. Do you think that these limitations have been overcome by the introduction of cost accounting?
Ans.Limitations of Financial accounting are:
1. Provides only limited information:
2. Treat figures as single, simple and silent systems
3. Provides only a post mortem record of business transactions
4.Considers only quantifiable information
5. Fails to provide informational needs of different levels of management
Importance of cost accounting:
Whatever may be the type of business, it involves expenditure on materials, labour, and other items required for manufacturing and disposing of the product.
Moreover, a big business requires delegation of responsibility, division of labour and specialisation.
Management has to avoid wastage at each stage, like machine idle, efficient labour, proper utilisation of by products is made and costs are properly ascertained.
Besides that management, creditors and employees also benefitted in numerous ways by installation of good costing system in an industrial organisation.
Cost accounting as an aid to management:
Cost Accounting provides invaluable aid to management.
Adequate costing data helps management in reaching certain important decisions such as, whether hand labour should be replaced by machine, whether a particular product line should be discontinued or not etc.
Costing checks recklessness and avoids occurrence of mistakes.
As an aid to management , it provides invaluable information to enable management to maintain control over stores and inventory, to increase efficiency of the business, and to check wastage and losses.
Ans.Limitations of Financial accounting are:
1. Provides only limited information:
2. Treat figures as single, simple and silent systems
3. Provides only a post mortem record of business transactions
4.Considers only quantifiable information
5. Fails to provide informational needs of different levels of management
Importance of cost accounting:
Whatever may be the type of business, it involves expenditure on materials, labour, and other items required for manufacturing and disposing of the product.
Moreover, a big business requires delegation of responsibility, division of labour and specialisation.
Management has to avoid wastage at each stage, like machine idle, efficient labour, proper utilisation of by products is made and costs are properly ascertained.
Besides that management, creditors and employees also benefitted in numerous ways by installation of good costing system in an industrial organisation.
Cost accounting as an aid to management:
Cost Accounting provides invaluable aid to management.
Adequate costing data helps management in reaching certain important decisions such as, whether hand labour should be replaced by machine, whether a particular product line should be discontinued or not etc.
Costing checks recklessness and avoids occurrence of mistakes.
As an aid to management , it provides invaluable information to enable management to maintain control over stores and inventory, to increase efficiency of the business, and to check wastage and losses.
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