BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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TRUE
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FALSE
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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: -Normative accounting, most commonly found in a company’s business or marketing plan, takes a subjective approach. Based on abstract principles, it endeavours to characterise what the financial future of a firm should look like.
Detailed explanation-3: -Positive accounting attempts to describe accounting as it is actually done. By contrast, normative accounting attempts to describe accounting as it should be done. It aims to describe what a company or investor should do, often using subjective morality derived from some theory.
Detailed explanation-4: -Why would it not be appropriate to reject a normative theory of accounting because its prescriptions could not be confirmed through empirical observation? Firstly, “because normative theory contains a subjective value judgment, this value judgment can not be proved or falsified”.