A limitation of the balance sheet in portraying the financial position of an entity is:
A) items which cannot be measured in money are not included.
B) there is no adjustment to values for inflation.
C) the historical cost approach means that assets are not shown at their estimated market values.
D) all of the above are limitations.

Question

Quizplus · Accepted Answer

All of the above options are limitations of the balance sheet in accurately portraying the financial position of an entity. The balance sheet only reports the historical cost of assets and liabilities, meaning they may not reflect their current market value. Some items, such as goodwill, cannot be measured in monetary terms and are not shown on the balance sheet. Additionally, there is no adjustment for inflation, which can distort the financial position of the entity.

A Limitation of the Balance Sheet in Portraying the Financial