Advantages AND Disadvantages OF Accounting Recording Process PDF

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ADVANTAGES AND DISADVANTAGES OF ACCOUNTING RECORDING PROCESS.

ADVANTAGES: 

Maintenance of business record

Accounting recording process regularly documents all financial transactions relating to the respective year in the books of accounts. Due to its scale and complexity, it is not possible for management to remember transaction for a long time [CITATION top203 \y \l 17417 ].



Preparation of financial statements

Financial statements such as trading and profit and loss account, balance sheets can be easily prepared if transactions are properly reported. Proper recording of all financial transactions is very important of financial statements of the entity [CITATION top203 \y \l 17417 ].

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Comparison of results

Accounting recording process makes it easy to equate the financial performance of one year with another. Management should also evaluate the systematic recording of all financial transactions in compliance with the policies of the entity [CITATION top203 \y \l 17417 ].

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Decision making

Decision making will be easier for management when there is a thorough recording of financial transactions. Accounting information allows management to schedule its future plans, budget and organize activities in different departments [CITATION top203 \y \l 17417 ].

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Valuation of business

Accounting recording process is needed for an entity’s business accounting records as it can be used for proper valuation. It also helps to calculate the worth an entity by using accounting details in the case of an entity’s sale [CITATION top203 \y

\l

17417 ].

Disadvantages: 

Expresses accounting information in terms of money

Non-financial transactions cannot have an impact on the books of accounts. Only transactions of a financial nature may be calculated by the accountant. Indeed, financial transactions are expressed in terms of money [CITATION top203 \y

\l

17417 ].



Recording of fixed assets at the original cost

There might be a difference between the original cost and the new cost of replacing a fixed asset due to the time efflux, technological transactions and others. Thus, the balance sheet could not indicate the true financial state of the company [CITATION top203 \y \l 17417 ].

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Accounting information may be biased.

Accountants have a personal impact on the entity’s accounting records. The accountant may use various methods of inventory valuation, depreciation methods, treatment of revenue and capital expenses to calculate the entity’s income. Therefore, profits could be inaccurate due to lack of objectivity [CITATION top203 \y \l 17417 ].

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Money as a measurement unit changes in value There is no stability in the valuation of currency. Accounting reports would not reflect the true financial position if fluctuations in price level are not considered [CITATION top203 \y \l 17417 ].



Accounting information is based on estimates

Some accounting data are based on approximations. Hence, inaccuracy in estimates is also probable [CITATION top203 \y \l 17417 ]....