Accounting Theories and their importance Harvard Case Solution & Analysis

Accounting Theories and their importance Case Solution


Accounting is basically measures and processes the financial information in monetary terms. It is the key indicator for the company to assess its financial performance with the number of given values. Accounting is followed by its major theories which consist of principles and concepts to evaluate the accounting standards into the business.Over here, the practitioners are called accountants who use these concepts to evaluate the company’s performances (Riahi-Belkaoui, 2004)

 Accounting is divided into many forms of fields such asfinancial accounting, Auditing, Management accounting and Tax accounting. The procedures of accounting are followed by generally accepted accounting principles, which set the standards to calculate the accounting terms into the business entity.

Therefore,as far as the practitioners and students are concerned, accounting follows the accounting theories instead of practicing direct accounting standards, which is awaste of time as it follows the number of accounting theories, which are not applicable to the practitioner who is not in his practice.

The limitations of accounting theories can hinder the concept of accounting and hence, they will reflect negatively to the newly hired accountants and for the company thatis limited to some principles. In order to clarifysome of the important concepts of accounting, following are some theories which are more important to every day accounting practices in an entity.

Accounting Theories

Accounting theories consist of various principles & concepts and their relationship with certain course of action. These can be evaluated by acertain event that occursin terms of monetary value. The key factors to evaluate are propositions, which are the relationships of the related concepts. The term ‘theory’ is used to explain why such phenomena occur and how they can implement through certain values.

The criteria to explain the theory is the prediction and explanations of the related accounting procedure and principles. Following are some selected accounting theories that can be important to every day operations in terms of monetary value for an entity and also provides its importance to practitioners as well as the students.


There are numerous policies and concepts that direct the field of accounting. The companies use the accounting principles in order to maintain the financial statements of the company. As a result, it provides general guidance and concept to the companies to manage the financial data of the company by using the GAAP process.

 The most accepted accounting principle that companies use in order to maintain the financial data of the company isGAAP. This technique includes the three most important rules: (1) provide the guidelines regarding the accounting principles (2) provide the detailed overview of the policies and concepts which is introduced by the FASB (financial accounting standards board) or ABA (Accounting principle board). (3) The normally admitted business practices.

Basically, GAAP is focused on modifying the change in the economic condition in the market. This technique is used for the preparation of the financial statements and bookkeeping. It must be combined in such a way that covers the entire financial details in unified manners. Moreover, this principle is used for obtaining the unified opinion from the auditors independently. However, it must be compiled for investments that are scheduled by the stock exchange market for the issuing of new securities. ...................

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