(a) Mention three disadvantages to a business that does not keep proper accounting records. (b) Explain the following characteristics of accounting informat...

(a) Three disadvantages of not keeping proper accounting records

• Profit or loss cannot be accurately determined.
• The true financial position (assets and liabilities) is not known.
• Fraud, theft and errors are difficult to detect and control.
• It becomes hard to obtain loans or credit, since no reliable accounts can be shown, and tax cannot be assessed fairly.

(Any three of the above.)

(b) Characteristics of accounting information

• Relevance: the information must be useful and bear directly on the decision to be made, being capable of influencing that decision.
• Comparability: information must be prepared and presented in a consistent manner so that it can be compared from period to period and between different businesses.
• Consistency: the same accounting methods and policies should be applied from one period to the next, so that results are meaningfully comparable.
• Reliability: the information must be accurate, free from material error and bias, and should faithfully represent the transactions it reports.

(c) Two limitations in using accounting information for decision-making

• It is largely historical - based on past events, which may not reliably guide future decisions.
• It ignores non-monetary/qualitative factors (e.g. staff morale, competition) and is affected by estimates, personal judgement and the effect of inflation, which can distort the figures.