Limitations of Balance Sheet

 A balance sheet is a financial statement of an organization which includes assets, liabilities, equity capital, total debt, etc. in a specific time. The balance sheet includes assets on one side and liabilities on the other. There are some limitations of balance sheet. These are-

(1) Balance sheets do not show the true value of the asset. Historical Spending has been criticized for its carelessness because it cannot reflect current market valuations.

(2) Some of the current assets have an approximate value, so the balance sheet is not in a position to reflect the actual financial position of the business.

(3) The balance sheet cannot reflect assets that cannot be expressed in financial terms such as efficiency, intelligence, honesty and loyalty of workers.

(4) The balance sheet is prepared at the end of the financial year and so if there is any error with the financial condition of the company in terms of performance or if there is any fraud then the balance sheet will be reflected only at the end of the financial year when maximum loss occurred.

(5) The limitation of the balance sheet is that it does not take into account the qualitative factors.

(6) The balance sheet is dependent on the information entered in the journal and the book because the balance sheet is prepared from the book of the letter and therefore if any mistake is made while entering the journal and the book, the balance sheet will also bear these errors.