Accounting is known as the language of business. It communicates operational result of business to various interest groups, such as, owners, managers, employees, creditors, consumers, government and general public. Financial Accounting and Cost Accounting are two types of Accounting.

Financial Accounting is concerned with recording of day-to-day financial transactions, calculation of income, determination of assets owned and amount owed by the business.

It helps in managing finance, production, and distribution and administration but’ fails to provide information on the level of efficiency achieved by business in different functional areas.

Profit is the motive behind all business operations. It is the excess of benefits obtained over the sacrifices made by the business in monetary terms.


Former is known as revenue arid the latter is cost. In the present day of competitive business scenario, revenue is the outcome of market forces and the business has little scope to maneuver the same to its advantage.

The alternative left with the business to enhance profit is to control and reduce cost. Financial Accounting has no scope to provide information for the best use of the alternatives available to the business to control and reduce cost to get higher profit.

Expenditure is incurred for the day-to-day activities of the business. Fluctuation in expenditure affects profitability. It has to be reduced and controlled to increase and maintain profitability. Financial Accounting fails to provide information regarding expenditure incurred for each product, job, department, process, etc. Limitations of financial accounting are as follows: