Accounting involves recording, classifying, summarizing, and interpreting business transactions with economic value. Accounting theory encompasses logical principles that enhance the understanding and evaluation of accounting practices, guiding the development of new methods. Key standard-setting organizations include the FASB, which follows GAAP, and the IASB, which develops IFRS to promote transparency and efficiency in financial markets.

1. Theory of Accounting

2. What is Accounting?
 Accounting is an art of
 Recording;
 Classifying;
 Summarizing; and
 Interpreting
 all the business transactions and events
 which have economical or monetary value.

3. What is Accounting Theory?
 An Accounting Theory is a set of logical principles which
 Provides better understanding of existing practices to practitioners,
managers, investors & users;
 Provide conceptual framework for evaluating existing accounting
practices;
 Guides the development of new practices and procedures

4. Approaches to formulate Accounting Theory
Accounting theory approaches
Traditional
Approach
Deductive Approach
Inductive Approach
Ethical Approach
Sociological Approach
Economic Approach
Eclectic Approach
Regulatory
Approaches
New Approaches
Event Approach
Behavioral Approach
Predictive Approach
Positive Approach

5. Generally Accepted Accounting Principles (GAAP)
 GAAP are the set of principles, guidelines, practices and standards that
are to be used in preparation and presentation of financial statements
by an entity and which are generally accepted by all to standardize their
reporting process
Economic Entity
Principle
Monetary Principles
Time Period
Principle
Cost Principle
Full Disclosure
Principles Going Concern
Principle
Matching Principle
Materiality
Principle Conservatism
Principle
Duel Aspect
Principle

6. Financial Accounting Standard Board (FASB)
 An independent and not for profit organization
 Which develop and approves
 Financial Accounting and reporting standards
 for private and public companies, not-for-profit organizations
 Which follows Generally Accepted Accounting Principles (GAAP)
FASB Mission Statement
 To establish and improve standard if financial accounting and reporting
 Of private and public companies, not-for-profit organizations
 Which provide the useful information to various classes of people
 Like investors, suppliers, financial institutions, bankers & users of Fis

7. International Accounting Standard Board (IASB)
 An independent and not for profit organization
 Which setup, develop and approves
 International Financial Reporting Standards (IFRS)
 In coordination with IFRS foundation
IASB Mission Statement
 To develop international financial reporting standards (IFRS) that
 That brings
 Transparency;
 Accountability; and
 Efficiency
• to the financial market around the world

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