Accounting Theory

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
SCHOOL OF BUSINESS
(DEPARTMENT OF ACCOUNTING AND FINANCE)
BY
Derek Andy Dadzie
PG3096122
Charity Mmabila Nyaaba
PG3097022
Gloria Makafui Akototse
PG3094922
Owusu Francis Kojo
PG3097422
William Boateng
PG3095722
INTRODUCTION
Scholarly definition of Accounting Theory: Accounting theory refers to the body of

principles, concepts, and assumptions that underlie the preparation and presentation of
financial statements and other financial information. It encompasses the framework of
concepts and principles used to develop, interpret, and apply accounting standards and
practices. Accounting theory seeks to provide a logical and coherent explanation of
the nature and purpose of accounting, the role of financial reporting, and the methods
used to measure and report financial information.
My personal definition of Accounting Theory: To me, accounting theory refers to the

systematic approach of understanding and interpreting the accounting principles and
practices. It involves studying and analyzing the various concepts and frameworks
that guide the preparation, presentation, and interpretation of financial information.
Accounting theory helps in providing a foundation for accounting practices, and it
aids in understanding the rationale behind the accounting standards.
OUR OBJECTIVES
The objective of the present paper is to review the following:
 To know the importance of Accounting Theory.

 To know the importance of Accounting Theory for accounting Professionals
and Practitioner.
 To analyze the Concept, Need, Advantages and limitations of Accounting and
Accounting Theory.
 To analyze the future aspect of Accounting Theory.
CHARACTERISTICS OF ACCOUNTING THEORY
1. Originates and Explains Practices
Accounting Theory plays a dual role of both of originating and explaining accounting
practices. Present practices and problems serve as the basis for the development of
new theories similarly; accounting theory also tries out to explain the rationale behind
the existing practices.
2. Rationalizes the Accounting Practices
One of the key aspects of the good accounting theory is to rationalise or provide a
logical framework to the accounting practices which would not only serve as general
principles of references for evaluating and guiding the existing accounting practices
but also developing the new practices arising as a solution to the dynamic
environmental problems.
3. Dynamism
Any theory would not be accepted worldwide or won't flourish unless and until it has
dynamism in it. Accounting theories have inbuilt dynamism in their DNA which
enables them to cope and develop accounting practices with the changing business
environment.
4. Verified and Tested by Practice
Accounting theories are very verified and tested on evaluated by the accounting
practice to check is there a any existence of deviation in the theory and practice are
not, if there is the case of deviation then accounting theory is modified, restated or
pale the way for a emergence of new phenomena are principles.
5. Systematic Set of Coherent Postulates or Principles
Accounting theories provides a systematic set of coherent postulates are principles,

which are accepted as true in order to provide a basis for logical reasoning to the
existing practices.
6. Statement of Systematic Methodologies and principles
Accounting theories are simply the statement of principles and methodologies to be

followed by the accountants.
7. Predictions
One of the major features or test of a good accounting theory is its inability to predict
or govern the accounting events and behavior.

WHY ACCOUNTING STUDENT SHOULD ACQUAINT HIMSELF WITH
ACCOUNTING THEORY
"Why I should read accounting theory? Why am I supposed to do valor of reading

such a boredom thing?" These are the questions which would generally come into
every reader’s mind. Well answer to such questions is that, knowledge of accounting
theory provides bundle of benefits which would make life of practitioners and readers
of accounting easy. The knowledge of accounting theory due to scores of benefits it
gives, serve as a deadly weapon in the arsenal of the accountant. The acquaintance to
accounting theory gives following benefits:
1. Understanding the purpose of accounting:
Accounting theory helps students understand the purpose of accounting and its role in
providing information to stakeholders such as investors, creditors, and regulators.
Applying accounting standards: Accounting theory provides a framework for

understanding and applying accounting standards, which are essential for preparing
financial statements that are accurate and compliant with relevant regulations.
2. Analyzing financial statements:

Accounting theory helps students develop the skills necessary to analyze financial
statements and interpret financial information. This is important for making informed
decisions about investments, lending, and other financial transactions.
3. Evaluating accounting policies:
Accounting theory helps students develop the skills necessary to analyze financial
statements and interpret financial information.
Developing critical thinking skills: Studying accounting theory encourages students

to develop critical thinking skills, as they analyze different accounting theories and
evaluate their strengths and weaknesses.
some reasons why I think accounting students should study accounting theory based
on research and expert opinion
Improve decision-making skills:
Understanding accounting theory can help accounting students make more informed
decisions by providing a broader context for the information they are analyzing. This
can be particularly helpful when making complex financial decisions.
Better prepare for professional exams:
Many professional accounting exams include questions that test the candidate's
knowledge of accounting theory. Studying accounting theory can help accounting
students prepare for these exams and improve their chances of success.
Develop a competitive edge:
Studying accounting theory can help accounting students differentiate themselves

from their peers by demonstrating a deeper understanding of accounting principles
and practices. This can be particularly important when seeking employment or
advancement in the accounting profession.
In summary, studying accounting theory can provide numerous benefits to accounting

students, including a deeper understanding of accounting principles, enhanced critical
thinking and decision-making skills, better preparation for professional exams, and a
competitive edge in the job market.
LIMITATIONS OF ACCOUNTING THEORY
In spite of number of benefits which knowledge of accounting theory gives to its

users, there are varied reasons which limit the acceptability of accounting theory
universally. As a student of accounting theory, one should keep in mind that the
accounting theory though influences the accounting practices but also gets influenced
by customs and practices followed in the society, these practices or customs may defer
region wise thus it limits accounting theory to get wider acceptability. Government
policies and legal requirements also impact the development and acceptance of
accounting theory. One of the devastating facts of the accounting theory is that,
various conflicting theories and alternative treatment of same items are available,
which creates problem of selection for the accountants, these conflicting theories
gives rise to inconsistency and ambiguity in accounting practices, which creates a
dilemma for both the users and practitioners of accounting.
CONCLUSION
In Spite of overwhelming progress have been achieved in unifying, justifying

rationalizing and explaining accounting practices world over yet the gap between
theory and practice is quite huge which need to be brought down or even nullified so
that accountancy and went its practitioners to cope up with the challenges it is bound
to face with the ever- changing business environment. The theories discussed in this
research paper are quite different in their exemptions, techniques and methods used
for research, problems and issues researched, and inferences drawn on the conclusion
arrived at, yet, the writers have failed to justify the superiority of the respective
theories over each other this inefficiency.There is no theory or class of theories that
explains and predicts all accounting phenomena and that is expected however not
desired because accounting theories are simplifications of reality treating/or assuming
it to be static but globally things are changing and complex. This doesn't means that
accounting fraternity should disregard or abandoned these theories because they might
not tick all the boxes but tick most of them.
REFERENCES
1. American Institute of Certified Public A

2. Q1``ccounting, The Basic Postulates of Accounting, Accounting Research
Study No. 1, AICPA, 1962.
3. American Accounting Association, 1996, A Statement of the Basic Accounting

Theory.
4. Ahmed Belkaoul, Accounting Theory, Harcourt Brace Javanovich, 1985.
5. Eldon S. Hendriksen, Accounting Theory, Richard D. Irwin, 1984.

6. Michel Glautier, Deigan Morris, Brian Under down, Financial Times Prentice
Hall, 2011.
7. Robert N. Anthony and James S. Reece, Accounting Principle, Irwin, 1991.
8. Sidney Davidson et al, Financial Accounting, The Dryden Press, 1984.

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KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

(DEPARTMENT OF ACCOUNTING AND FINANCE)

Derek Andy Dadzie

Charity Mmabila Nyaaba

Gloria Makafui Akototse

Owusu Francis Kojo

Scholarly definition of Accounting Theory: Accounting theory refers to the body of

My personal definition of Accounting Theory: To me, accounting theory refers to the

The objective of the present paper is to review the following:

 To know the importance of Accounting Theory.

1. Originates and Explains Practices

2. Rationalizes the Accounting Practices

4. Verified and Tested by Practice

Accounting theories provides a systematic set of coherent postulates are principles,

6. Statement of Systematic Methodologies and principles

Accounting theories are simply the statement of principles and methodologies to be

or govern the accounting events and behavior.

"Why I should read accounting theory? Why am I supposed to do valor of reading

1. Understanding the purpose of accounting:

Applying accounting standards: Accounting theory provides a framework for

2. Analyzing financial statements:

3. Evaluating accounting policies:

Developing critical thinking skills: Studying accounting theory encourages students

Improve decision-making skills:

Better prepare for professional exams:

Studying accounting theory can help accounting students differentiate themselves

In summary, studying accounting theory can provide numerous benefits to accounting

LIMITATIONS OF ACCOUNTING THEORY

In spite of number of benefits which knowledge of accounting theory gives to its

In Spite of overwhelming progress have been achieved in unifying, justifying

1. American Institute of Certified Public A

3. American Accounting Association, 1996, A Statement of the Basic Accounting

5. Eldon S. Hendriksen, Accounting Theory, Richard D. Irwin, 1984.

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