Explain the limitations of the balance sheet as a financial statement

The balance sheet is a financial statement that demonstrates the asset and capital structure of a company. Though it is a key statement in evaluating the financial position of a firm, it has its limitations. Firstly, the balance sheet is a static document, it depicts the assets and liabilities "as on date x", and therefore cannot be a complete, up to date representation of a firm's financial position. Secondly, assets are often expressed at their "book value" (wherein depreciation is deducted from their historic costs), and this figure may vary from the actual market value of the asset. Further to this, not all assets are shown on the balance sheet, for instance, intangible assets, such as patents and a skilled workforce.

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Answered by Nandini G. Business Studies tutor

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