Question

Which of the following potentially limits the usefulness of the balance sheet?

1) Historical cost accounting
2) Subjective judgments
3) Lack of timeliness
4) All of the above

Answer 1

The potentially limits the usefulness of the balance sheet include historical cost accounting, subjective judgments, and lack of timeliness.

Step-by-step explanation:

The potentially limits the usefulness of the balance sheet include:

1. Historical cost accounting: This accounting method records assets at their original purchase cost, which may not reflect their current market value or true worth. This can result in understating or overestimating the value of assets.
2. Subjective judgments: Balance sheets rely on subjective judgments made by management about the value of certain assets, such as goodwill or intangible assets. This subjectivity can lead to biases or incorrect assessments of value.
3. Lack of timeliness: Balance sheets are prepared at a specific point in time and may not reflect the most up-to-date information about the financial position of a company. Changes in assets or liabilities after the date of the balance sheet may not be reflected accurately.

Therefore, the correct answer is option 4) All of the above.