Limitations of a Comparative Balance Sheet

Uniformity in methods of accounting

The balance sheet of two companies can only be compared when the method is followed and the accounting principles remain the same. There are multiple types of accounting principles that a company chooses, according to preference.

Inflation not accounted for

Inflation is the general price rise of goods and services. No measures are taken in the comparative balance sheet to counteract the effects of inflation. This makes a direct comparison of the balance sheet of two companies for different periods or markets inaccurate.

Misleading information

A balance sheet can provide some misleading information while assessing and comparing companies. This misleading information can affect the decision of investors and managers managing the company and making decisions by relying on the balance sheet.