Limitations of the Balance Sheet
1) Historical Cost: Most assets and liabilities are reported at historical cost (ie. the purchase price) and have increase/decreased in value. The increase or decrease in value is only reported when the assets are sold.
2) Judgement and Estimates: Companies use estimates and judgement to determine the values of many items reported on the balance sheet. For example the amount of receivables a company expects to collect is most likely an estimate based on historical data.
3) Not everything of financial value is reported: Intangible assets are sometimes a companies most valuable asset, however, some intangible assets cannot be reliably measured and are therefore omitted from the balance sheet. For example knowledge and skills of employees, customer base, research superiority and reputation. Many companies do not report some liabilities or report them in an off the balance sheet manner.