This document discusses the importance of accounting theory and provides an overview of different theories of accounting. It explains that accounting theories aim to explain, predict, or prescribe accounting practices. Early theories were developed through induction based on observations of actual accounting practices. Starting in the 1960s, normative theories attempted to prescribe what accountants should do rather than just describe existing practices. Positive accounting theory seeks to explain and predict which accounting methods managers will choose based on self-interest. No single theory is universally accepted, and theories cannot be proven, but are continually refined through logical deduction and evidence.
financial accounting theory by Craig Degan 3rd edition chapter 2
prepared by: Dewan Mahbood Hossain
Assistant Professor, dept. of A.I.S
UNIVERSITY OF DHAKA
financial accounting theory by Craig Degan 3rd edition chapter 2
prepared by: Dewan Mahbood Hossain
Assistant Professor, dept. of A.I.S
UNIVERSITY OF DHAKA
Theoretical Base of Accounting
Accounting is often called the language of business, because the main purpose of language is to act as a means of communication. Accounting also communicates the results of business activities to the managers, owners, investors, creditors, bankers, government, etc. Accounting as an information method is a process that identifies, measures, records, summarises, and transmits business information to the interested parties. In every business a number of parties are interested for different purposes. Accounting provides all these parties with the information required by them.
In ancient times, accounting statements were required only by the owner of the business, but now various parties having interest in the business, such as business owners, investors, creditors, government and other parties, require these. Accounting statements reveal the profitability and efficiency of the business to various parties. Therefore, it is necessary to use accounting principles and standards in accounting. Accounting principles and accounting standards have been considered as the theoretical basis of accounting. Therefore, it is necessary that the accountants or accountants establish an interrelationship between the accounting principles, practices, concepts and accounting standards.
Meaning of Accounting Principles
Accounting principles refer to the rules used by an accountant or accountant while preparing financial statements and accounts. The accountant has to follow these rules while preparing proper accounts. Based on years of experience, experiment and need, the accounting profession has evolved certain guidelines or rules which can be used to record business transactions (or transactions) and prepare the income statement / profit and loss account and Their presentation in the form of sheets is done in the form of standards. These instructions and rules are called accounting principles.
Accounting principles are known by many names, different names; Such as Concepts, Traditions, Axioms, Postulates, Assumptions, etc.
Definitions of Accounting Principles
According to R.N. Anthony “The Rules and Conventions of accounting are Commonly referred to as (accounting) principles. “
According to AICPA “The word principle is used to mean a general law of Rule adopted or professed as a guide to action, a settled ground or basis of conduct or practice. “
In short, accounting principles mean all those rules and assumptions which explain the prevailing practices, help in the selection of conventions and methods and which are used in the preparation of financial statements. It is evident. that accounting principles govern the development of accounting techniques, practices and procedures
1. Financial Accounting Theory Craig Deegan, 3 rd edition Prepared by: Dewan Mahboob Hossain, Assistant Professor; Department of Accounting & Information Systems; University of Dhaka; Dhaka; Bangladesh
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