BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -What is Accounting Theory? An accounting theory is a notion that uses speculations, methodologies, and frameworks in the study of financial reporting (as well as how financial reporting principles are applied in the accounting industry).

Detailed explanation-2: -Positive accounting theory seeks to understand why accounting practices are employed by accountants in different circumstances and by different firms. Three hypotheses in positive accounting theory: bonus plan, debt covenant and political cost.

Detailed explanation-3: -PAT seeks to forecast which companies will adopt a precise accounting method and explain which accounting practices will be used under particular circumstances, whereas normative theories provide prescription about how the process of financial accounting should be stipulated (Deegan, 2006: 217).

Detailed explanation-4: -The main difference between inductive and deductive reasoning is that inductive reasoning aims at developing a theory while deductive reasoning aims at testing an existing theory. In other words, Iinductive reasoning moves from specific observations to broad generalizations.