Академический Документы
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Accounting
• Accounting objectives are maintaining a complete and systematic
record of all transactions, summarizing, reporting and analyzing the
financial performance & position of a business.
• Fundamentals of accounting – to record, summarize, report, analyze
that deals with the Assets, Liabilities & Equities.
• An accounting practice is a routine manner in which the day-to-day
financial activities of a business entity are gathered and recorded and
finally reported and analyzed.
• An accounting process is a series of activities that begins with a
transaction and ends with the closing of the books. Because this
process is repeated each reporting period, it is referred to as the
accounting cycle and includes these major steps: Identify the
transaction or other recognizable event.
• An accounting framework is a published set of criteria that is used to
measure, recognize, present, and disclose the information appearing
in an entity's financial statements.
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• a basic idea or rule that explains or controls how something happens
or works
Principle is a basic idea or rule that explains or controls how something happens or
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History and Evolution of Accounting
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Accounting Theory
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Theory
“In theory, the journey should take three hours, but in practice it
usually takes four because of roadworks.”
• a formal statement of the rules on which a subject of study is based
or of ideas/ assumptions that are suggested to explain a fact or
event or, more generally, an opinion or explanation
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Agency Theory
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Theory
• Theory is used as basis of explanation with regard
to how/why certain phenomena happens the way
they do.
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Accounting Theories
• Accounting theory states that all accounting information should be
relevant, reliable, comparable, and consistent
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• Simple explanation: Accounting theory provides a guide for effective
accounting and financial reporting.
Accounting theory is a set of assumptions, frameworks, and
methodologies used in the study and application of financial
reporting principles. The study of accounting theory involves a review
of both the historical foundations of accounting practices, as well as
the way in which accounting practices are changed and added to the
regulatory framework that governs financial statements and financial
reporting.
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Accounting theory : A cohesive (united) set of conceptual,
hypothetical and pragmatic propositions explaining and
guiding the accountant’s action in identifying, measuring and
communicating economic information. 14
• Financial accounting theory focuses on the “why” of accounting – the
reasons why transactions are reported in certain ways.
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Constructing theory
• The deductive approach in constructing the theory of accounting starts with
specifying the objective. This methodology is usually moving from the general to
the specific. The deductive approach includes formulating assumptions and
testing them via research process.
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Accounting Theory Construction, Formulation and Verification
Deductive
Inductive
• Reasoning from the particular to the general
• Example,
P1: The cash account is an asset account and has a
debit balance.
P2: The Vehicles account is an asset account and has
a debit balance.
P3: The land account is an asset account and has a
debit balance.
C : All asset accounts have debit balances
• P1, P2, &P3 is so specific for each account. C is
generalization from all P.
• Arguments begins with a set of a particular examples,
claim that it will representative of some greater whole,
then infer some generalization about that whole. 23
Inductive approach
• In accounting, the inductive approach begins by observing the
financial information of the companies and progresses towards
constructing accounting generalizations and principles out of those
observations and re-occurring relations.
• The early theorists’ preference was to apply the inductive approach
based on the observations of real practices. It is the opposite of
deductive research. Aims at exploring a new theory.
• Inductive approach is flexible as the researcher does not have to
follow any pre-determined information. However, critics would argue
that if observations are incorrect, the researcher would end up in
incorrect conclusions.
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Grounded Theory
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Accounting Theory Construction,
Formulation and Verification
A theory is evaluated to prove the adequacy of
what it proposes. Bases/criteria for theory
verification (or testing a theory) are:
• Dogmatic basis (Dogmatic – follow the rules)
Believe what we read and statements made by
others simply because they have been made by
an authority
Self-evident basis
Reasonableness of a statement based on our
general knowledge, experience and observation.
• Scientific basis
Through testing, research, experimentation and
so on (support with empirical evidence)
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