Profit is what business is left with after deducting such expenses from revenue which

made the receipt of revenue possible. As we have discussed above that there are two
streams of earnings direct (earnings from main activities) and indirect (earnings from
other activities) therefore, we calculate profits at two levels i.e. gross profit and net
profit.
Gross profit is the amount of revenue from which trading expenses has been deducted
i.e. expenses related to main activities of the business.
Net profit is the amount of revenue that includes incomes from other activities as well
and all such expenses has been deducted which were incurred towards main activities as
well as other activities.
Gain is what business earns on selling such assets which is not an inventory of the
business. Simply put, this sales activity is not the actual trading of the business and is
not among those goods that business sell on regular basis. Some of you might be asking
a question that what is the difference between gain and income then? Well the term
gain is used to represent such earnings which are definitely from such activities which
are other than main operations but with an additional condition i.e. it is what we earn on
selling business asset which is usually fixed asset of the business. Where as income is
not just gain from sale of asset. Income includes gain and other earnings like dividends
received, interest income etc.
Limitations of Accounting
1. Financial accounting is of historical nature
Net effect of transactions are recorded in financial accounting which has
happened in past. These accounts is just post-mortem of all events of business in
past .These record does not help for future planning and other managerial
decisions. Financial accounting shows the profitability of business but it is failure
to tell that is it good or bad. Financial accounting is also failure to know the
reasons of low profitability position.

2. Financial accounting deals with overall profitability

Accounts of business are made by a way which shows only overall profitability .It
does not shows net profit per product , or per department or according to job .
Thus to find difficult to all activities which do not give profit. So, it creates
inefficiency in business activities.

3. Absence of full disclosure of facts

In financial accounting we record only those activities and transactions which we

can show or describe in money. There are many other facts of business which are
non financial and non monetary like efficient management, demand of products of
firm , good relations in industry , good working environments which can not be
known by financial accounting .

4. Financial reports are interim report of business

Financial statements made by financial accounting is the interim report of firms

all business work but financial position and profitability which are shown in it is
not fully true . Due to adopting cost concept, all transactions are recorded on it
real cost but by changing in the time; it is the need of time to adjust cost of
assets and liabilities according to inflation of market. Because, financial
accounting does not records according to inflation so its result does not show true
position of business.

5. Incomplete knowledge of costs

From cost point of view, financial accounting is incomplete. In financial

accounting, accountant does not calculate each and every products total cost. So,
financial accounting does not help to determine the price of product of business.

6. No provision of cost control

Financial accounting does not help business organization for controlling the cost.
Because, there is no provision of controlling cost in it. In financial accounting, we
write cost, if we paid any expenses. Thus there is no provision of improvement in
financial accounting. Except this, there is no any other way to inspect all
expenses.

7. Financial statements are affected from personal judgment

Many events of financial statements are affected from personal judgement of

accountant. Method of calculating depreciation, rate of provision of doubtful
debtsand stock valuation method are decided by accountant. Thus, financial
statements do not show true and fair view of business.
ADVANTAGES FOR ACCOUNTING
1st Reason

Accounting is growing field due to increasing of different business regulations .

Different international laws is in favour that company accounts must be made
under accounting principle so , we should study accounting and its principles.

2nd Reason

Accounting have many different area of specialize . You can make specialize in
making and maintaining of accounts , internal auditing , Forensic Accounting ,
independent auditing , management accounting or cost accounting .So in
accounting you can make your personality with your specialization . For this you
have to study accounting .

3rd Reason

Accounting subject can provide lot of jobs growth opportunities because every
company need an accountant . So , they hire accountant and you can make your
career in it .

4th Reason

Accounting gives opportunity to move to other areas of business . If you will do

accounting jobs in different business organisations . You can also learn different
practical skills of business , so you can shift your career as a business and enjoy
your life with independence . Almost all good businessmen start their career from
accounting field , so we should study accounting .