Question

A key limitation of balance sheets in financial analysis is that: A) liquidity and solvency ratios require information from other financial statements. B) different balance sheet items may be measured differently. C) some items are recognized when they are unlikely to reflect a flow of economic benefits.

Answer 1

Answer: Option (B) is correct.

Explanation:

The three limitations to balance sheets are as follow:  

1.) Assets are being noted or stored at a historical cost,  

2.) There is a thorough use of the estimates,

3.) There's also omission of several precious non-monetary assets.  

Therefore from the given options, we can state that the key limitation of using a balance sheets under the constraints of financial analysis is that different items in a balance sheet are or may be evaluated differently.