The theory of accounting revolves around strategies, assumptions, procedures, and frameworks associated with the study of financial reporting and implementations of financial reporting principles in the accounting industry. What accounting theories try to achieve is a better understanding of how accounting works and how it has evolved over the years. Let’s understand what the theory of accounting, its elements, concepts, and ways of using it in managing financial transactions is. There are two types of accounting:

1. Financial Accounting

Financial accountants focus on providing reports on the performance of the business. Financial accountants’ reports are for an external audience.

2. Management Accounting

Management accounting is about providing reports to the top brass of the company’s management. Management accountants’ reports are for a company’s internal audience.

There are some objectives of Accounting Theory. Different objectives fulfilled by the theory of accounting are-

  • Evaluation and Explanation of Accounting Principles
  • Simplifying Complex Phenomena
  • Solving Problems Created by Different Scenarios
  • Calculating the Effect of an Event on the Future Beforehand
  • Predicting Future Events
  • Helping the Investigation, Explanation, and Conclusion of an Event

These are the results that accounting theory sets to achieve, and these are what all accounting theories are based on.

  • Relevance
  • Usefulness
  • Reliability
  • Consistency

A company is heavily dependent on its accounting system. That’s why maintaining a reliable accounting system requires an astute knowledge of accounting theory. Share with us in the comments below if you liked the post.