In this article, we will have a clear idea about Accounting Theory i.e. the Definition of Accounting Theory as well as the Classification of Accounting Theory.
Definition of Accounting Theory
According to Prof. Hendrickson, accounting theory may be defined as logical reasoning in the form of a set of broad principles that provide a general frame of reference by which accounting practice can be evaluated and guide the development of new practices and procedures.
Classification of Accounting Theory
1.Descriptive accounting theory: It explains the causes and effects of the day-to-day events of our life. This helps us to predict how an event will be treated in accounting.
2. Normative accounting theory: It is mainly concerned with the future acts in the light of the present daily phenomenon. In fact, it helps in solving critical problems in future. So, this theory is advisory in nature.
3. Evaluative accounting theory: The theory which helps us to know about the quality and quantity of any object or event is known as the evaluative accounting theory.
4. Communicative accounting theory: These are some basic and fundamental theories which gives us the exact forecast of events.
5. Inductive accounting theory: The theory which examines and analyses the happening of past events is known as inductive accounting theory. In fact, the existing accounting practices are explained and justified on the basis of inductive reasoning.
6. Deductive accounting theory: The theory which is prepared by following the methods of deduction is called to achieve some particular goal. In fact, new accounting practices according to changing needs of the society are developed by deductive reasoning.
7. Generally accepted accounting theory: These are fundamental theories which can be applied equally in all cases and are adopted by all. In most of the cases they produce more or less same result.
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