Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 5 - Balance Sheet and Statement of Cash Flows - Review and Practice - Questions - Page 237: 7


The major limitations of the balance sheet as a source of financial information incorporate: i. The values stated on the balance sheet are usually historical and not at fair value. ii. Most of the financial assets that have some financial significance to the business are presently not recorded for instance, the value of a company's human resource. iii. Estimates are largely used in a number of instances such as in the determination of collectibility of receivables or finding the approximate useful life of long-term tangible and intangible assets.

Work Step by Step

Additionally, balance sheets are only a snapshot of the conditions of a company, that is, it only takes into consideration what is going on that moment with the business thus it does not take into consideration the business's long-term prospects. Again the balance sheet does not tell you the accurate value of a company since it only provides you with the figure of the shareholder equity rather than telling you the worth of the company.
Update this answer!

You can help us out by revising, improving and updating this answer.

Update this answer

After you claim an answer you’ll have 24 hours to send in a draft. An editor will review the submission and either publish your submission or provide feedback.