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List 4 limitations of Personal Financial Statement(PFC) and give a brief explaination for each of them

List 4 limitations of Personal Financial Statement(PFC) and give a brief explaination for each of them
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Answer #1

Personal Financial Statement: It mainly talks about the current financial position of the person which contains asset and liability data associated with the particular person.

Limitations of personal financial statement are as follows:

1. Dependence on historical data: Data present in the personal financial statement is historical.

2. No account for inflation: Due to no account of inflation data present in personal financial statement underestimate the asset and liabilities.

3. Subject to fraud: Since there is not much auditing done on the data there is chances that some fraud can be done by individual with his financial statement.

4. No predictive value: one can't make any predictive judgement using personal financial statement due to its historical data, one can't judge what will be the future financial status of the person to due uncertainty with the future.

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