She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In the United States, accountants followed the generally accepted accounting principles (GAAP) to guide their everyday work. If you deal mostly in services rather than sell products, you won’t have a cost of goods sold account. A real account, by definition, has a monetary value and is the property of the business. This paper will take into consideration the positive and negative approach of accounting theories; their advantages and disadvantages, comparison and relationships between the two and evidence supporting that where each of the approaches might be appropriate in the current economic and business environment. A lease which cannot be classified as a finance lease is known as an operating lease. That is why Accounting Period Concept plays a very significant role in accounting. Generally speaking, transactions are tracked in a journal. The second golden rule of accounting, used for what is called real accounts, dictates that you always debit what comes in and credit what goes out. Lastly, when it comes to nominal accounts, you must debit all expenses and losses and credit all incomes and gains. There are several principles considered part of basic accounting theory, including cost principle, matching principle, materiality, conservatism and monetary unit assumption. Usually, management accountants are well-versed in the running of a company and are therefore better suited to provide advice to owners. Pages 33. The first of these rules deal with the double-entry system of bookkeeping, which dictates that every transaction will need to be reflected in at least two accounts. Cost Principle Theory. ... On the other hand, there are disadvantages to normative accounting, the main issue being that it provides us with several choices, any of which could be correct. The study of accounting theory involves a review of … Revenue is recognized when earned, and expenses are recognized when assets are consumed. If you find papers matching your topic, you may use them only as an example of work. The accounting theory is classified into positive and normative accounting theory. Whether your company is being audited or merely needs to file its quarterly taxes, you will need to have a skilled accountant on your side to prepare the necessary statements and ensure that basic accounting theories are met. accounting and management accounting, a discussion of the history of management accounting has to begin with an analysis of the history of financial accounting. Email :- support@crazyforstudy.com samples by all dates, 14 (3500 words), Stop Animation and the Comparison to Newer Techniques in CGI, The Relationship Between Security, Risk and Health in a Large Organisation, Evaluation of Performance of a Bank Using Published Accounting Data, Comparison of Leading Womens Role in Portrait of Teresa and Salt of Sea, Juvenile Delinquency and Education: A Comparison of Public and Private Education, Management Theory and Practice in the Early Childhood Education Industry, Conflict Between Researh and Ethics on the Tuskegee Syphilis Study, Accounting Theory - Comparison between Positive and Normative Approach. The third assumption assumes financial statements reflect dollar amounts, not numbers such as unit production. The Tuskegee Study of Untreated Syphilis is widely considered as one of the most horrific studies in which the basic ethics of conduct has been totally disregarded. a) Briefly outline one branch of pragmatic theory, including two criticisms of that branch. It considers the value of the dollar and whether this value might remain consistent or change over time. Cost principle: This principle requires recording assets as soon as they are acquired. The study was based on the hypothesis that black and white people differed in their response to the disease. The main objective of this study is to critically review the Origin, Growth and Development of accounting theories and their impacts on financial reporting. underling Accounting theories is International Financial Reporting Standard (IFRS). Danielle Smyth is a writer and content marketer from upstate New York. Accounting theory also includes the reporting of account-ing and financial information. In the aftermath of the Enron and WorldCom scandal, the government had to force change with the creation of the Sarbanes Oxley Act of 2002 due to a lack of trust in financial information. This concept means that a business may recognize revenue, profits and losses in amounts that vary from what would be recognized based on the cash received from customers or when cash is paid to suppliers and employees. Consequently, mixing the two accounts can make it more likely you will be audited. For instance, if your company has a salesperson who earns $2,000 in commissions for work done in January, the expense for this should be recorded in January, even if you do not pay the employee until the next month. Whatever kind of business you run, a thorough understanding of the many ways to look at your financial needs and a good grasp of accounting principles is imperative for both company owners and accountants to ensure that your fiscal future is safeguarded. And the fourth assumption of accounting theory is that financial statements need to be prepared at least on a monthly or annual basis. There are two approaches to this dilemma – cash basis of accounting and accrual basis of accounting. Let's dive into a few key differences. Theories in accounting main branches pragmatic. Accounting theory is a set of assumptions and methodologies used in the study and application of financial reporting principles. Accounting runs on something called the “golden rules,” which are a series of guidelines for how financial transactions should be tracked. The Securities and Exchange Commission suggests that a line item that represents less than 5 percent of a budget need not be accounted for, but that anything over that amount should be. The management bonus and debt hypotheses explain the two main sources of incentives for managers' choices between alternative accounting methods. Newest Essay Topics, Index when should the revenue be recognized in the books of accounts. Accruals concept. The need for generally accepted accounting principles arises from two reasons: 1) to be logical & consistent in recording the transaction 2) to conform to the established practices & procedures The International Accounting Standards Committee (IASC) as well as the Institute of Chartered Accountants of India (ICAI) These basic accounting theories are the foundation for understanding your company's financial direction and developing strategies for long-term success. ... be evaluated by a number of ways such as checking the rating agencies and listings, going through customers reviews, independent analysis based on published. Careful judgment must be exercised when determining whether a specific transaction is important enough since materiality does not outline specifically which transactions are deemed most impactful. Before the study was initiated in 1928, the U.S Public Health Services (PHS) had already completed a study in Mississippi in which 25% of the participants who were all black had tested. Accounting Theory Construction 1. It’s essential for accountants and business owners alike to understand basic accounting concepts. “Accounting Theory - Comparison Between Positive and Normative Approach Essay”, n.d. https://studentshare.org/finance-accounting/1473244-the-two-main-theoretical-approaches-in-accounting. The two alterna Solved Expert Answer to Assignment task:The two main theoretical approaches in accounting theory are the normative approach and the positive approach. registered office at Aglantzias , 21, COMPLEX 21B, Floor 2, Flat/Office 1, Aglantzia , Cyprus. Your accountant will recommend which categories should be used and included in your chart of accounts, based on the type of business you operate. School University of the South Pacific, Fiji; Course Title AF 301; Uploaded By hudsyn23. ‘Accounting structure’ theory, known by different names such as classical theory, descriptive theory, traditional theory, attempt to explain current accounting practices and predict how accountants would react to certain situations or how they would report specific events. Other objectives are to explore accounting theory in resolving Do the cultures or organizations influence the accounting theory? CA. You may not submit downloaded papers as your own, that is cheating. prescriptive (normative) accounting theories, inductive accounting theories and predictive accounting theories. Financial accountants, however, generally work to provide reports indicating how well the business is being run. 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