Introduction to Accounting Theory
A statement on belief expressed in a language.
A deductive system in which observable consequences logically follow from the conjunction of
observed facts with the set of the fundamental hypotheses … (Braithwaite, 1968)
A coherent set of hypothetical, conceptual and pragmatic principles forming the general framework
of reference for a field of inquiry.
A set of premises which is logically related.
The process of identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of the information.
A set of interrelated concepts, definition and propositions that present a systematic view of
phenomena by specifying relations among variables with the purpose of explaining and predicting
Logical reasoning in the form of a set of broad principles that provide a general framework of
reference by which accounting practice can be evaluated and guide the development of new practices
Nature of accounting theory
a. Accounting as a language
• Perceived as a language of business.
• Business activities are reported in accounting statements using accounting language.
• Translate economic event and transactions into smthg that can be understood by users.
b. Accounting as a historical record
• Concern with providing a faithful record of the transactions of an entity and manager
stewardship of the owner’s resources.
c. Accounting as an economic good
• Accounting info is not costless to produce and impose compliance costs.
• Manager chooses accounting rules that minimize info costs and shareholders impose
accounting rules that improve the ability to control and monitor the actions of managers.
d. Accounting as current economic reality
• Balance sheet and income statement should be based on a valuation basis that is more
reflective of economic reality rather than historical costs. Focus on current and future
e. Accounting as c