Accounting Theory


DEFINITION of 'Accounting Theory'

Assumptions, methodologies and frameworks used in the study and application of financial principles. The study of accounting theory involves a review of both the historical foundations of accounting practices, as well as the way in which accounting practices are verified and added to the regulatory framework that governs financial statements and financial reporting.

BREAKING DOWN 'Accounting Theory'

Accounting as a discipline has existed since the 15th Century. Since then both businesses and economies have greatly evolved. Accounting theory is a continuously-evolving subject, as it must adapt to new ways of doing business, new technological standards and gaps that are discovered in reporting mechanisms. Organizations such as the International Accounting Standards Board help create practical applications of accounting theory, and professionals such as CPAs help companies navigate accounting standards.

  1. Financial Statements

    Records that outline the financial activities of a business, ...
  2. Accounting

    The systematic and comprehensive recording of financial transactions ...
  3. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  4. International Accounting Standards ...

    An older set of standards stating how particular types of transactions ...
  5. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
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  1. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  2. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  3. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  4. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  5. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>
  6. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>

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