Question

What practical difficulties are encountered by a trader due to incompleteness of accounting records?

Answer 1

The practical difficulties which are encountered due to the incompleteness of the accounting records are as follows:

1. It does not depict the authentic information as the accuracy of the maintenance of the books of accounts cannot be ascertained.

2. Accurate information of the profit or loss position of the business cannot be ascertained in such cases as not all expenses and incomes are not recorded.

3. The tax authorities do not accept the maintenance of the single entry system of accounting as the proper picture of the business cannot be assessed.

4. Lapses if any during the process of accounting are not made known and hence there is a less chance for the business to make needed corrections.

5. The preparation of the Balance Sheet cannot be made as it does not follow the double-entry system of accounting and hence Statement of Affairs is prepared which does not depict accurate and authentic results of the financial performance of the business.