Accounting Theory
Accounting Theory
There is always a reason behind each and every action of a human being. A man does not anything without any sound reason.
Regarding Finance, or financial matters, a man is always extra cautious and so, he never makes any financial transaction without any reason. As accounting deals with financial transactions, so every accounting work is also based on reasoning. Accounting Theories always try to explain with reason, the logic underlying a particular practice. Generally Accepted Accounting Principles cannot be changed completely as they are widely and universally accepted but they can be reformed and remoduled to suit the needs of any changed Society or Economy. Accounting Theories point out to the scientific ways of thinking for the solution of any real world accounting problem.
According to Prof.Hendriksen, “Accounting Theory may be defined as logical reasoning in the form of a set of broad principles that provide a general frame of reference by which accounting practice can be evaluated and guide the development of new practices and procedures.
To be absolutely able to solve any real world accounting problem, an accountant should have sufficient practical experience aided by adequate theoretical knowledge. Generally accepted accounting principles, widely used customs, conventions, doctrines, procedures and postulates constitute accounting theories. Thus, a logical and confirmed hypothesis, accepted a general by all, may be called Accounting Theory. As all other theories are based on sound and solid reasoning. Accounting Theories are similarly based on sound reasoning.
Accounting theory and Accounting Practices are absolutely closely related. They are so close, as it is very difficult to make them separate. Accounting Theories have developed through observation, analysis, explanation, scrutiny and scanning of the day-to-day accounting practices. Again on the other hand, the day-to-day accounting practices are performed by successful application of those established and generally accepted theories and principles. as due to changes in the economy, the Society changes, similarly, due changes in the Socio-economic structure in any country, the pattern of accounting practices may also change. If there is any change in the accounting pattern, the pertinent theories also need necessary modification and modulation. So then, theories also ought to be changed. So, the relations between the two are compensatory and not competitive. There cannot be any practice without the proper theoretical knowledge. Again, theories emerge out of constant observation, analysis, examination of the theoretical problems and procedures. So, one cannot even exist without the order. Theories are considered to be the pillars on which the whole structure of accounting stands. If the accountant is to perform his work of accounting successfully and skillfully, he will have to equip himself with complete and full theoretical knowledge. One cannot even think of practicing accounting without being properly equipped with theoretical knowledge. Not only that, theories also help the accountant in solving real world accounting problems which may crop up during the practice of accounting. So, Accounting Theory and Accounting Practices are very closely related-so close as not to be separated.
2. After learning theory only one can know that practical accounting is not so dull and monotonous as to be the summation of some debits and credits.
3. By learning accounting theory only the accountant can perform his work more skillfully and flawlessly.
4. An accountant, perfectly equipped with sound knowledge of accounting theory, cannot only understand his job-problems better, but also can make others understand the same in a better way.
5. There are many processes of practical accounting. A single process cannot be applicable to all cases. If the accountant knows the theories well, he can select the correct process of accounting applicable to a particular case.
6. There may be may flaws and defects in the accounting system of a concern. If the accountant has got sufficient knowledge of accounting theory, he can easily find these out and administer advices to the management as to the way of future protection.
7. Present day business is full of diverse Socio-economic problems. So, accounting, now-a-days has become complicated and complete. Knowledge of accounting theory helps the accountant to tide over real world-accounting problems very easily.
8. An accountant, fully equipped with the knowledge of accounting theory, can easily help the management in an effective manner by supplying proper accounting information at the proper time.
9. Valuation of various assets and liabilities can be more or less accurately if the accountant has the knowledge of accounting theory.
10. The various persons and parties interested in the business, like, the Government, public, investors, Money-lenders, Researchers etc., rely more on the accountant knowing theories than the accountant without any theoretical knowledge.
No one can deny now-a-days the usefulness of having theoretical knowledge in the practice of accounting. Needless to state that a man knowing theories is much better than a man who does not know those. Even if an ordinary man can be imparted with proper theoretical knowledge and practical training, it is sure that he will turn out to be a good accountant. So, during the present days, one cannot do any theoretical knowledge of accounting. It is essential now.
Regarding Finance, or financial matters, a man is always extra cautious and so, he never makes any financial transaction without any reason. As accounting deals with financial transactions, so every accounting work is also based on reasoning. Accounting Theories always try to explain with reason, the logic underlying a particular practice. Generally Accepted Accounting Principles cannot be changed completely as they are widely and universally accepted but they can be reformed and remoduled to suit the needs of any changed Society or Economy. Accounting Theories point out to the scientific ways of thinking for the solution of any real world accounting problem.
According to Prof.Hendriksen, “Accounting Theory may be defined as logical reasoning in the form of a set of broad principles that provide a general frame of reference by which accounting practice can be evaluated and guide the development of new practices and procedures.
To be absolutely able to solve any real world accounting problem, an accountant should have sufficient practical experience aided by adequate theoretical knowledge. Generally accepted accounting principles, widely used customs, conventions, doctrines, procedures and postulates constitute accounting theories. Thus, a logical and confirmed hypothesis, accepted a general by all, may be called Accounting Theory. As all other theories are based on sound and solid reasoning. Accounting Theories are similarly based on sound reasoning.
Accounting theory and Accounting Practices are absolutely closely related. They are so close, as it is very difficult to make them separate. Accounting Theories have developed through observation, analysis, explanation, scrutiny and scanning of the day-to-day accounting practices. Again on the other hand, the day-to-day accounting practices are performed by successful application of those established and generally accepted theories and principles. as due to changes in the economy, the Society changes, similarly, due changes in the Socio-economic structure in any country, the pattern of accounting practices may also change. If there is any change in the accounting pattern, the pertinent theories also need necessary modification and modulation. So then, theories also ought to be changed. So, the relations between the two are compensatory and not competitive. There cannot be any practice without the proper theoretical knowledge. Again, theories emerge out of constant observation, analysis, examination of the theoretical problems and procedures. So, one cannot even exist without the order. Theories are considered to be the pillars on which the whole structure of accounting stands. If the accountant is to perform his work of accounting successfully and skillfully, he will have to equip himself with complete and full theoretical knowledge. One cannot even think of practicing accounting without being properly equipped with theoretical knowledge. Not only that, theories also help the accountant in solving real world accounting problems which may crop up during the practice of accounting. So, Accounting Theory and Accounting Practices are very closely related-so close as not to be separated.
There are many advantages of learning accounting theory. These are enumerated as follows:
1. By learning accounting theory only one can know the basic reasons behind all accounting practices.2. After learning theory only one can know that practical accounting is not so dull and monotonous as to be the summation of some debits and credits.
3. By learning accounting theory only the accountant can perform his work more skillfully and flawlessly.
4. An accountant, perfectly equipped with sound knowledge of accounting theory, cannot only understand his job-problems better, but also can make others understand the same in a better way.
5. There are many processes of practical accounting. A single process cannot be applicable to all cases. If the accountant knows the theories well, he can select the correct process of accounting applicable to a particular case.
6. There may be may flaws and defects in the accounting system of a concern. If the accountant has got sufficient knowledge of accounting theory, he can easily find these out and administer advices to the management as to the way of future protection.
7. Present day business is full of diverse Socio-economic problems. So, accounting, now-a-days has become complicated and complete. Knowledge of accounting theory helps the accountant to tide over real world-accounting problems very easily.
8. An accountant, fully equipped with the knowledge of accounting theory, can easily help the management in an effective manner by supplying proper accounting information at the proper time.
9. Valuation of various assets and liabilities can be more or less accurately if the accountant has the knowledge of accounting theory.
10. The various persons and parties interested in the business, like, the Government, public, investors, Money-lenders, Researchers etc., rely more on the accountant knowing theories than the accountant without any theoretical knowledge.
No one can deny now-a-days the usefulness of having theoretical knowledge in the practice of accounting. Needless to state that a man knowing theories is much better than a man who does not know those. Even if an ordinary man can be imparted with proper theoretical knowledge and practical training, it is sure that he will turn out to be a good accountant. So, during the present days, one cannot do any theoretical knowledge of accounting. It is essential now.
Accounting theory vs Accounting practices
Practically speaking, there is no rivalry between accounting theory and accounting practice. One is always dependent on the other. The practice of accounting is always guided and influenced by conventions, doctrines, and various other rules and methods which have been accepted by all. Practice without theory can never be conceived of. Again, there is no utility of any theory when there is no practice. Practice of accounting has developed through customs, usages and conventions which are called theories. So, these may be considered as closely related.
But still, there are some differences between the two which may be enumerated as follows:
2. Theories are framed by actually analyzing of accounting Practices.
3. Accounting Theories are based on sound reasoning and therefore they are scientific.
4. Theories, as such, cannot help us to know the financial position of the business or the amount of Profit or Loss during a particular period.
5. Accounting Theories can never be considered as a means of conveying information either internal or external.
6. Accounting Theories help us to solve any complicated problem arising out in course of practical accounting, specially during these modern days of complicated financial system.
2. Accounting Practices are only applications of accounting theories.
3. Accounting Practices need not always be strictly logical and scientific as practice depends upon prevailing customs, norms and conventions.
4. Accounting Practices are always designed to calculate the profit or loss of the business of the state of affairs.
5. Accounting Practices are considered as valid media for conveying various information to different interested parties.
6. Accounting Practices in the conventional method are unable to solve any such problem.
So, we see that Accounting Theory and accounting Practice are interdependent and thus closely related. One may be considered as a substitute for other because, theory cannot be separated from practice and practice is an integral part of theory.
But still, there are some differences between the two which may be enumerated as follows:
Accounting Theory
1. A theory means a definite directive principle. .2. Theories are framed by actually analyzing of accounting Practices.
3. Accounting Theories are based on sound reasoning and therefore they are scientific.
4. Theories, as such, cannot help us to know the financial position of the business or the amount of Profit or Loss during a particular period.
5. Accounting Theories can never be considered as a means of conveying information either internal or external.
6. Accounting Theories help us to solve any complicated problem arising out in course of practical accounting, specially during these modern days of complicated financial system.
Accounting Practice
1. Accounting Practice is what is actually done in the way of recording and analyzing accounting activities.2. Accounting Practices are only applications of accounting theories.
3. Accounting Practices need not always be strictly logical and scientific as practice depends upon prevailing customs, norms and conventions.
4. Accounting Practices are always designed to calculate the profit or loss of the business of the state of affairs.
5. Accounting Practices are considered as valid media for conveying various information to different interested parties.
6. Accounting Practices in the conventional method are unable to solve any such problem.
So, we see that Accounting Theory and accounting Practice are interdependent and thus closely related. One may be considered as a substitute for other because, theory cannot be separated from practice and practice is an integral part of theory.
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