The limitations of the balance sheet as a source of information include the following. First, a balance sheet uses values that are historical in nature hence it does not show the true value of assets. The financial information reported are based on the transactions that took place instead of using the current market valuation. Such information might be outdated hence unreliable for decision-making purposes (Patra, 2006). Second, some of the current assets used in the balance sheet are valued on an estimated basis (Patra, 2006). This makes the balance sheet not to reflect the company’s true financial position. For instance, in the balance sheet, estimates have been used in determining the collectability of the receivables. Third, the balance sheet does not record many items such as loyalty of employees, skills, honesty or intelligence because they cannot be expressed in monetary terms. Although the items depict financial value to the company, it is difficult to reflect such assets on the balance sheet (Tinkelman, 2015).
The balance sheet requires large volumes of financial information thus making accounting errors unavoidable. As an accountant, I will prevent accounting errors by creating digital copies of all financial documents. I will scan the documents, and this will help me in situations when the problem arises because I will be in a position to review them quickly. In addition, I will employ the use of manual reconciliation of the financial information that is on the balance sheet with the original financial records to ensure I have accurate data. I will make sure I reconcile the bank statements properly every month, and this will help minimize errors.
Patra, K. (2006). Accounting and finance for managers. Sarup & Sons.
Tinkelman, D. P. (2015). Introductory Accounting: A Measurement Approach for Managers. Routledge.
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