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In: Accounting

Accounting theories are the foundation for understanding your company's financial direction and developing strategies for long-term...

Accounting theories are the foundation for understanding your company's financial direction and developing strategies for long-term success. What are some theories that a business owner should be aware of?

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Expert Solution

Theories give idea how to make it, how to apply it, and what is the methodology. A business owner should know these accounting theories for success in the business.

Accounting theories are as below:

No.1) Relevant: Accounting information must be relevant; such as current year’s information with relevant data should be presented in financial report.

No.2) Reliable: There must be reliability; such as cash payments are supported by respective vouchers of cash disbursements.

No.3) Comparable: It should be presented in a way, which could be compared thoroughly. Such as sales increased by 10% from the last year.

No.4) Consistent: Methods applied in accounting must be consistent; suppose straight line method of charging depreciation is followed since last 5 years. If such method is changing heavily, like straight-line for this year and double declining method in the coming year, then the system is not consistent and it doesn’t indicate smooth accounting.

ekkarill92 answered 1 year ago
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