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Accounting theory examines practical and theoretical issues in accounting practices such as historical costs, decision usefulness, portfolio risk, fair-value-oriented standards and executive management compensation and earnings. In addition, it also discusses economic and political issues and criteria related to accounting practices required by accounting governing bodies such as Canadian Institute of Chartered Accountant (CICA), Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB).
The first goal of accounting theory is to describe and explore various theories that underlie financial accounting and reporting. The second goal is to explain and illustrate the relevance of these theories in order to understand the practice of accounting and reporting.
Some of the main theories are based on economics and finance. For instance, by discounting future cash flows to present time, the present value model enables a theoretically correct basis of asset and liability valuation and income measurement of a firm. Thus, the present value model provides a benchmark to guide accounting practice. From a finance stand point, portfolio and efficient market theory are used in accounting practices in understanding how investors make rational investment decisions and how they use financial accounting information to make their decisions. Accountants can then prepare financial statements that are of greatest use to investors.
To put in a nutshell, accounting theory helps to understand the impact of complex ideas and regulations on financial reporting and the interpretation of information generated by financial reporting at the conceptual level.
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What is positive accounting theories?
Positive Accounting Theory is a branch of academic accounting research. It tries to predict and explain actual accounting practices. It is used to understand how to use accounting practices better.
What is the difference between 'Normative Accounting Theory' and 'Positive Accounting Theory'?
Normative theory is used to advise what methods should be used for accounting. Positive accounting theory explains and predicts accounting as it is currently happening.
What is semantic approach in theory of accounting?
Semantic approach in theory of accounting is referring to data analysis and transmission of data between two parties either independently or corporately.
What is nature meaning and elements of accounting theory?
Accounting Theory is defined as the study of methodologies and financial accounting principles. The Accounting Theory is continuously-evolving and changing.
What is an explanation of roots of accounting theory?
Roots of accounting theory can be found in either decision theory , measurement theory and information theory.
What is Normative theory in relation to accounting?
Answer:Normative theory in accounting is theory about how net income 'should' be calculated. Positive accounting theory on the other hand is about observing/explaining and predicting accounting choices of firms.
What is positive accounting theories?
Positive Accounting Theory is a branch of academic accounting research. It tries to predict and explain actual accounting practices. It is used to understand how to use accounting practices better.
What is Normative accounting?
Normative Theory is a theory that prescribes how a process of accounting should be done. This theory is not based on observation and may suggest radical changes to current practices in accounting
What is the difference between 'Normative Accounting Theory' and 'Positive Accounting Theory'?
Normative theory is used to advise what methods should be used for accounting. Positive accounting theory explains and predicts accounting as it is currently happening.
What is the relation of political science to history?
the relation of the political science is it concerned the theory and practices of the people all around us...................
What Is Relation Between Professionalism And-theory?
theory does not include practice but professionalism does
Comparison between scientific management theory and human relation theory?
Similarities between the classical and human relations theory
What is semantic approach in theory of accounting?
Semantic approach in theory of accounting is referring to data analysis and transmission of data between two parties either independently or corporately.
What is nature meaning and elements of accounting theory?
Accounting Theory is defined as the study of methodologies and financial accounting principles. The Accounting Theory is continuously-evolving and changing.
What is an explanation of roots of accounting theory?
Roots of accounting theory can be found in either decision theory , measurement theory and information theory.
Essay for accounting theory?
Discuss; there is no one universally accepted accounting theory.
What is accounting theory and why is it important for accounting student to accounting theory?
Accounting theory is the collection of methodologies used in the study and application of the different financial principles. It is important for an accounting student to know it because it is the basis for all future accounting studies.
