Accounting Theory- Useless or Useful Harvard Case Solution & Analysis

Accounting Theory- Useless or Useful Case Solution 

Introduction

 This paper will define the scope of accounting theory and its importance in the practical accounting. The evaluation of the usefulness of the accounting theories will be made by analyzing different accounting theories. This paper will thrive to reveal the importance of the theories in accounting and will try to erode the general misconception of considering accounting theories as useless and immaterial.

Theory

 The word ‘theory’ as per oxford dictionary means a set of principles and rules based on which practical activities are executed. It also means a system of ideas that is supposed to give meaning to something. (Oxford Dictionaries, n.d). Theories simplify the unknown general phenomena, so consistency and stability are created.

Accounting

Accounting gives the numerical and financial language to the business. It defines every aspect of the business in a quantifiable manner. Whether it is income or expenditure, estimated and actual losses and assets or liabilities all are defined and simplified by accounting. Moreover, accounting defines the business so that the entrepreneur can operate its business in an efficient way.

Accounting provides the financial business information for both internal and external use. The uses of accounting information are not confined to the entrepreneur or the related stakeholder. It serves the informational need of every individual who has hisown specific purpose and need of information.

Accounting theory

 Every individual has his own reason for any action that he does. Different people might use the same technique to do a similar action, typically by the use of the same theoretical concept. There is always a reason behind the action performed. Accounting theory defines a rational and logical reason behind any certain financial transaction. It defines the underlying principle for this financial transaction’s recording, summarizing and presentation in the business map.

Professor Hendriksen defines accounting theory as being a set of principles, which describes the logical reasoning behind the rational of using the particular accounting practice. This theory can also be used in developing and referencing the accounting practice and procedure.  (Accounting theory, n.d)

Types of accounting theories

 There are different types of theories which may be defined as:

  • Descriptive Theory: this type of theory uses descriptive approach and defines the causes and consequences of any particular event. It describes how each event is treated in the accounting based on different circumstances.
  • Normative Accounting Theory;this theory is in nature of advices. It is concerned to address and defines the future acts based on current phenomena. It also helps in solving some critical issues unrelated to underlying accounting practice.
  • Evaluative Accounting theory: this theory helps to determine the ways to measure the qualitative and quantitative aspects of any event.

Other types include Communicative accounting theory, Inductive accounting theory and Deductive accounting theory and etc.

Accounting practice

 Accounting practice is the practical application of accounting procedures such as recording, summarizing, classification and analyzing accounting information. Most of the practices are developed based on the accounting theories. Accounting practice gives quantitative meaning to the business and its operations as well as it also qualitatively analyzes such quantitative information.It serves the purpose of different users of financial information. Accounting practice and accounting theory are interdependent on each other as one cannot survive without another. It can be said that the Accounting practices are based on the pillars of accounting theories.......................

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