Accounts from Incomplete Records

limitations. This is due to the basic nature of this mechanism. Broadly speaking, unless a systematic approach to maintenance of records is followed, reliable financial statements cannot be prepared. The limitations of incomplete records are as follows : (a) As double entry system is not followed, a trial balance cannot be prepared and accuracy of accounts cannot be ensured.

(b) Correct ascertainment and evaluation of financial result of business operations can not be made. (c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. (d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft.

(e) It becomes difficult to convince the income tax authorities about the reliability of the computed income. Every business firm wishes to ascertain the results of its operations to assess its efficiency and success and failures. This gives rise to the need for preparing the (a) the profit made or loss sustained by the firm during a given period; and (b) the amount of assets and liabilities as at the closing date of the accounting period.