Accounting theories provide both the theoretical basis and the rules based on that theoretical basis used to guide accountants in creating useful financial documents. If accounting methods and practices can be considered the meat of accounting, then accounting theories are the bones that lend them shape and structure. Consider the usefulness of accounting theories in assessing the financial health of your own small business.
One of the basic goals of the theory of a particular discipline is to have a well-defined body of knowledge that has been systematically accumulated, organized, and verified well enough to provide a frame of reference for future actions. Tell us what you need to have done now!
Theories may be described as normative or positive. Normative theories explain what should. Positive theories explain what is.
The goal of accounting theory is to provide a set of principles and relationships that explains observed practices and predicts unobserved practices. Meaning, accounting theory should be able to both explain why business organizations elect certain accounting methods over other alternatives and predict the attributes of firms that elect various accounting methods.
Accounting theory should also be verifiable research. As stated in the Financial Accounting Theory and Analysis, the development of general theory of accounting is important because of the role accounting plays in our economic society, which is characterized by a self-regulated market that operates through the forces of supply and demand.
The role of accounting is to report how organizations or companies use those scarce resources and on the status or resources and claims to resources. Because accountings have to report these organizations, the reports are done in a formal way called financial statements.
The financial statements that are the main focused in this paper is the income statement, the balance sheet and the statement of cash flows. An income statement is a financial statement for companies that indicate how net revenue is transformed into net income.
The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. Income statements should help investors and creditors determine the past performance of the enterprise; predict future performance; and assess the risk of achieving future cash flows.
However, information in an income statement has several limitations for instances, items that might be relevant but cannot be reliably measured are not reported, some numbers depend on accounting methods used, and some numbers depend on judgments and estimates.
Under the non-operating section in the income statement are other revenues or gains and other expenses or losses. Other revenues or gains are revenues and gains from other than primary business activities.
It also includes unusual gains and losses that are either unusual or infrequent, but not both. Other expenses or losses are expenses or losses not related to primary business operations.
These are reported net of taxes. Discontinued operations are the most common type of irregular items. Shifting business location, stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations.
Extraordinary items are both unusual abnormal and infrequent, for example, unexpected nature disaster, expropriation, prohibitions under new regulations.respect to accounting theory. First, theory does not explain al]._JJ,heartoftexashop.com,nting practice.
Theory is based on logic, and not all pra~~ic_e ~ logically con ceived. But if the emphasis is placed on the explanation of concepts and results rather than on techniques, the definition is generally correct. The study of accounting theory involves a review of both the historical foundations of accounting practices, as well as the way in which accounting practices are changed and added to the regulatory framework that governs .
Accounting rules and principles are the implementations of accounting theories intended to bolster the usefulness of financial documents through creating a common basis of understanding among accountants and end users. The Importance of Management Control in Monitoring the Pharmaceutical Industry Performance for Competitive Advantage Florinel Marian SGARDEA1 Elena Monica SABĂU2 Mihai VUŢĂ3 ABSTRACT Management control and thus managerial accounting will adapt to the requirements of market economy in terms of knowledge.
Another thought other action. The Importance of Accounting Theory to the Field Of Accounting The objective of theory is to explain and predict. One of the basic goals of the theory of a particular discipline is to have a well-defined body of knowledge that has been systematically accumulated, organized, and verified well enough to provide a frame of reference for future actions.
The Imporance of Accounting Theory to the Field of Accounting Essay. Words: Pages: 8. Open Document. The Importance of Accounting Theory to the Field Of Accounting The objective of theory is to explain and predict.
One of the basic goals of the theory of a particular discipline is to have a well-defined body of knowledge that has been.