Importance of Accounting Theory-Free-Samples-Myassignmenthelp.com

Question: You are required to write an essay on whether Accounting Students should Study Accounting Theory. Answer: Introduction Students who study commerce thought every financial problem can be can be solved by the accounting. But it is not true because many problems remain as it is, due to mare study of accounting and without having knowledge regarding accounting theory. Accounting theory is set of rules which developed for getting knowledge regarding various accounting standards and their application. Accounting theory provides an understanding of generally accepted accounting principles. This essay will put lights on the importance of accounting theory for the students who want to adopt accounting as their profession. This essay will also conclude whether the study of accounting theory is essential for the student of accounts or not. Accounting theory Accounting theory is a well organized set of rules which help the accounting professional in dealing with the accounting problems of the business world. This theory provides various accounting methods, reasons of application of accounting methods, the order in which accounting principles applied to an organization and relationship between various phenomena which requires to deals in accounting. Accounting theory is an art which develops concurrently. Accounting theory is set of rules that can be used for making explanation regarding the current accounting practices for getting better knowledge regarding them (Hendriksen Breda, 1992). In addition to this accounting theory, is a roadmap for developing new theories and practices of accounting. Moreover, accounting theory is an addition of practical and theoretical approaches used in accounting. It is also a truth that practical approach of accounting also emerges through the use of basic accounting theory. Practical and theoretical approaches have single aim i.e. to provide and make the development of accounting practices which can be applied systematically. The practical approach provides best accounting practice by the use of trial and error method i.e. by applying some practical approach then applying other and at the end reach at the best practical approach. On the other hand, the theoretical approach provides reasoning behind the suggested accounting practice i.e. theoretical approach is developed only if one has strong reason behind the need and development of the new theoretical principle of accounting (Maharshi Dayanand University, ROHTAK, 2004). As per Jesus Obana, accounting theory has a very long history which started from double entry book keeping hundred years back and then developed concurrently from standards setting, international accounting standers setting to global standard setting i.e. International framework of reporting standards (Obana, 2015). Need of accounting theory Accounting theories were flexible in nature and used as per the personal decision of making financial statements which lead many economic scandals like Enron and WorldCom. In these scandals, organizations use accounting as a weapon for making window dressing and showing financial statements specially balance sheet of the organization in a way so that it reflects better financial position without holding that good financial position. These scandals emerge the need of more developed and explained accounting theories, so that lacuna in accounting theories cannot help evil minds in defrauding with users of financial statement by making inappropriate financial statements and accounting. The reason behind economic scandals was the absence of ethics in the accounting profession. Such ethics can only be incorporated into the accounting practices by incorporation of accounting theories regarding the ethics in accounting (Need for a Theory of Accounting to Improve the Accounting Profession). A ccounting theory provides the regulators an understanding regarding the appropriate accounting practices. Hence it is essential to use accounting theories in accounting practice. Moreover, accounting is a science in addition to being an art (Watts Zimmerman, 1990). Being a science accounting theory provides a systematic method for presenting financial data of an organization in a way so that the users of that financial data can analyze the financial position of the organization. Accounting theories provide the basis for which is used by account professional in recording and presenting financial data of organization in the financial statements so that it can communicate to the users of financial statements (Li). Financial statements use by many users like owners, government authorities, lenders etc for making analysis regarding the financial position of the organization. Accounting theories provide accounting assumptions like accounting equation etc which is used by accounts professionals everywhere in accounting for any organization. In addition to accounting assumptions, it also gives accounting rules like accrual basis of accounting, double entry booking e tc, acceptable changes in accounting rules like a change in method of depreciation, change in method of inventory recording etc and accounting principles like going concern principle. Advantages of accounting theory Accounting theory incorporates various advantages which enjoyed by a person having knowledge regarding the accounting theories. Some of those advantages are, Sometimes when fixing some problem if one does not have an idea regarding the range of concepts in which solution can be found out then fixation of such problem become so difficult. Accounting theories help the person dealing with the accounting problems in identifying the range or area of such problem so that person dealing with accounting problem can narrow down his range of study required for overcoming accounting problem (Riahi-Belkaoui, 2004). Accounting theory in addition to giving a frame of standards also provides a general framework for providing the reference of applied standard in the accounting done by the profession (Thomas, 1986). Accounting theory provides generally accepted accounting principles which help in making financial statements on the basis of similar accounting standards over the globe. In short accounting, theory helps in making uniformity of practice so that financial statements of an organization can be compared with the other organization or with a similar organization with different accounting periods financial statements (H., 1969) New theories and development of old theories are as much important as having current theories. Accounting theory is helpful in generating new accounting theories and development of existing accounting theory with the change of social and economic environment in which organization operating and making profits. These advantages of accounting can only be used by having a clear understanding of accounting theories. Without having knowledge regarding accounting theory one cannot enjoy these advantages and may feel handicapped during the accounting under complex and unusual situations which needs the application of accounting standards. Need of accounting theory for commerce students Above discussion of the essay is enough to know the importance of accounting theory. Accounting theory is important for every person working in the area of accounting. A student of accounting needs to study accounting theory because it mainly focuses on the reorganization of the problems of the real business world which come across during accounting practice. Moreover, a student of accounts today will be an accounting professional in future hence it is necessary for the student of accounts to have knowledge regarding the every aspect of accounting. Study of accounting without the study of accounting theory is like the learning alphabets by kids i.e. learning something without actually understanding the standards behind that thing. An accounting professional needs to face many situations which are irregular during the accounting of real worlds business organization. Dealing with those irregular situations during accounting for any organization needs the understanding of accounting theory. Only practical knowledge of accounting is not enough in dealing with real business accounting related situations. Practical knowledge is only helpful up to accounting of less complex business organization whose socio economic environment is very common. But now a days structure of business organizations changing rapidly due to the way of accounting the fi nancial information of business organizations will also change. For meeting such changes and producing accounts with the updated accounting theories needs the understanding of accounting theories. Conclusion This essay concludes that knowledge of accounting theory is the base. Such base can only help the one who dreams to be an accounting professional. Every student of accounts needs to study accounting theory for making his/ her practical knowledge worthy and updated. Lack of knowledge regarding the accounting theory can stop the growth of knowledge base of accounts student regarding the accounting principles and their applications. Change is the rule of nature and this rule also applies on accounting also, if one wants to deal with the changes in the business structures, accounting for various business structures and way of dealing the problem arise in accounting under various situations then the person must have the understanding of accounting theories. Hence it can be concluded that accounting students should have knowledge of accounting theory for having bright future in the accounting profession. References H., G. S. (1969). An "Events" Approach to Basic Accounting Theory. The Accounting Review, 44 (1), 12-19. Hendriksen, E. S., Breda, M. F. (1992). Accounting Theory. Irwin Professional Publishing. Li, A. (n.d.). Usefulness of the Accounting Theory. Retrieved August 2017, 12, from https://smallbusiness.chron.com: https://smallbusiness.chron.com/usefulness-accounting-theory-37420.html Maharshi Dayanand University, ROHTAK. (2004). Accounting Theory. Retrieved August 12, 2017, from https://www.mdudde.ne: https://www.mdudde.net/books/Mcom/Mcom-f/Accounting%20Theory-final.pdf Need for a Theory of Accounting to Improve the Accounting Profession. (n.d.). Retrieved August 12, 2017, from https://www.managementstudyguide.com: https://www.managementstudyguide.com/need-for-a-theory-of-accounting-to-improve-accounting-profession.htm Obana, J. (2015, september 11). Historical Perspective in the Development of Accounting Standards. Retrieved August 2017, 12, from https://www.linkedin.com: https://www.linkedin.com/pulse/historical-perspective-development-accounting-jesus-obana-cpa-mba Riahi-Belkaoui, A. (2004). Accounting Theory (5 ed.). Chicago. Thomas, A. P. (1986). The contingency theory of corporate reporting: Some empirical evidence. Accounting, Organizations and Society, 11 (3), 253-270. Watts, R. L., Zimmerman, J. L. (1990). Positive accounting theory: a ten year perspective. Accounting review, 131-156.