Are Mudalovers looking for references on accounting theory? That’s right, many people think that accounting is a fairly difficult scientific study because it deals with money. Because its involvement with utility makes this accounting theory important and useful for several parties. If Mudalovers wants to get to know and understand this theory in basic terms, then you can read the following explanation:
Understanding Accounting Theory
Accounting theory is a form of understanding used to show speculation, methodology, and framework forms as well as studying forms of financial reporting. Accounting theory also discusses how financial reporting principles are applied in industries related to accounting. This theory is basically used as a study to understand financial reporting and how companies or institutions submit these reports using appropriate methods and strategies.
Accounting theory then has an interest in producing general statements, namely in the form of hypotheses as concrete explanations in accounting practice which can ultimately be used as consideration in making decisions. That is why this theory is free from value considerations and is the center of attention that needs to be paid attention to.
In practice, the meaning of accounting theory can be divided into two, namely science and technology. The following is a clear understanding:
1. Science
If the study of accounting is viewed from a scientific perspective, then accounting aims to obtain the truth or form of validity of a result to explain accounting phenomena that occur using appropriate scientific methods. This theory is interested in providing general statements and explanations that start from hypotheses in accounting explanations. The center of attention in the study of this science is matters of fact so that this theory becomes freer in determining values.
2. Technology
If accounting is viewed from a technological perspective, then accounting is technology in the form of software that is studied to develop accounting reports and activities in order to achieve certain social goals. So, accounting is also a knowledge of information engineering to create financial control. The results of accounting theory in a technological view are the principles, methods and techniques used to achieve accounting objectives.
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Types of Accounting Theories
Basically, accounting theory is a form of logical reasoning that evaluates and develops accounting practices. The result of this logical reasoning is a conceptual framework which forms a separate accounting constitution. Accounting in this case also has a goal to be achieved so it discusses the form of value judgment or Value Judgment.
Based on the targets or objectives to be achieved, accounting theory is divided into various types, as follows:
1. Positive Theory of Accounting
This theory explains accounting phenomena as they exist on the basis of empirical observations of every financial activity in a company or institution. In practice, this type of theory tries to look for things that are good and appropriate to produce the maximum possible profit or goodness.
2. Normative Theory of Accounting
This theory explains accounting phenomena to justify and justify accounting standards with the objectives that must be achieved for their presence and formation. Based on aspects of the aesthetic level of semiotics which discuss general theory with signs and symbols in the field of linguistics, accounting theory is divided into several types as follows:
- Syntactic theory is a theory that discusses financial reporting and provides reasoning about why data or information can be presented in that way.
- Semantic theory is a theory that explains attention to the problems of signs or symbols used as a form of measurement and presentation of operational activities and physical objects in companies in the form of financial reports. This theory also discusses the reasoning about why company activities can be symbolized in certain ways to form a certain strategy.
- Pragmatic theory discusses the influence of information on changes in behavior in using financial reports. This theory explains how the target party reacts to accounting information that is used appropriately.
Objectives of Accounting Theory
In practice, accounting has goals to be achieved in its activities so that it is used and applied as best as possible in order to achieve these goals, as follows:
- Can be used as data to carry out evaluations and explain accounting principles
- Accounting results can simplify something complex and comprehensive
- Can solve problems more precisely
- Can predict something that will happen in a certain time period and under certain conditions
- Can help identify, explain, and conclude forms of phenomena in the field of accounting
Elements of Accounting Theory
In its application, accounting has several important elements or elements to achieve certain goals such as the goals previously mentioned. The following are crucial elements in accounting theory:
- Relevance is an important element in accounting because every information in accounting must be appropriate and relevant to all aspects of it.
- Usability is an element that makes accounting very useful in making accurate and credible financial reports so that they become appropriate data for making decisions. This element can also help a company, institution, or business to produce decisions or steps and potential strategies to produce maximum profits.
- Reliability is showing that accounting can rely on and is in accordance with generally accepted accounting principle standards or what is called GAAP.
- Consistency is an important accounting element because basically producing correct accounting requires consistency in order to obtain complete data and information.
Basic Principles of Accounting
Because its role is very useful for several parties, accounting also has principles which form basic rules about how to carry out this implementation based on applicable procedures and appropriate and organized methods to achieve certain goals. The following are six basic accounting principles that need to be considered:
- Cost Principle is a principle where all assets in any form must be recorded in accounting as soon as possible after the asset is purchased or obtained. This is done by recording based on expenses so that a business can remain orderly and on track and can be accounted for.
- Matching Principle is a principle that matches expenses with income as completely as possible.
- Materiality Principle is the principle of recording only financial transactions that have been completed so that recording transactions that have not been completed can be postponed first. This principle also places emphasis on a more significant impact on budget forms so that recording them becomes an important thing to do.
- The Conservatism Principle is a principle that shows liabilities or obligations that have an impact, so it is best to always record each of these liabilities. This needs to be done because it can help companies or businesses to save and prepare a certain amount of funds if they have to pay debts and is the best way to plan the budget for future expenses.
- Time-Period Principle is a principle that shows the concept of having to report operational results that have been carried out in each period. This is done with the aim of creating a set of variables as a form of comparison over time, so that it can be a form of trend analysis.
- The Consistency Principle is a principle that emphasizes that the accounting system has been determined, so all transactions that occur in a business must follow the rules of that system. This principle aims to ensure that a particular company or institution does not vacillate and can remain consistent in the accounting transaction recording system so as to produce accurate and precise reports.
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Basic Concepts of Accounting Theory
Accounting theory can work well with four basic concepts that can determine and explain important guidelines in business management, such as the following concepts:
- The Accrual Concept is a concept that explains that the form of income from a transaction and liability needs to be recorded when the transaction occurs completely. For example, when a wholesaler or retail trader orders and receives an item with a nominal value of one million rupiah, but has not paid at that time, the trader needs to record the liability or obligation. Likewise, distributors or suppliers will calculate sales of these goods.
- The concept of consistency emphasizes the accounting methods applied in a company, namely that these methods must always be used consistently. For example, an accountant has decided to use the double-entry accounting method for the month’s records for the period, then he must consistently apply the records until completion.
- The going concern concept is that accountants must assume that a business is viable and will operate soon. If the accountant finds that the business will not perform well in the future, it is necessary to convey the appropriate reasons in the assumed form of financial statements used. If the accountant feels that the business will not survive in the future and he does not have enough evidence for his assumption, then he needs to provide a “disclaimer” in his report.
- The concept of prudence is a concept that shows that liabilities need to be taken into account in the balance sheet, even though the chance of their occurrence is still small. The same is true when calculating income reports in financial reports, thereby helping businesses to anticipate losses that could occur in the future.
Functions of Accounting Theory
The following are some of the main functions of the correct application of accounting theory:
- Activities in the form of collecting, replacing and storing financial data for a particular business, company or institution
- Provides various forms of information that can be used in various types of reports, including financial reports
- Providing various forms of important information about finances which will be the basis for company strategic planning and decisions
- Can help companies implement more effective methods to control the recording and processing of financial data to make it more efficient and accurate
Development of Accounting Theory
Accounting, which became a scientific discipline, began to develop in the 15th century and accounting theories began to emerge which were used by a company’s business. Because of these changes in accounting practice, a number of modifications have emerged that have been applied to accounting theory. Then the Financial Accounting Standards Board began to help regulate and revise accounting theory in a more complex manner. Certified Professional Accountants (CPA) also help various forms of large corporate businesses to adapt to modifications and standards of the accounting system.
History of Accounting Theory
The history of accounting began in 1494, when a scientist named Luca Pacioli created the accounting system that we know and use today. An Italian mathematician once taught mathematics to the famous scientist Leonardo Da Vinci. He then started what is called a double entry accounting system . Pacioli also began to introduce the use of financial reports in the form of ledgers, journals and bookkeeping, and key elements of today’s modern accounting.
Pacioli was the first known person to use a balance sheet and income statement. He wrote about these financial reports in a work entitled “De Computis et Scripturis” (Of Reckonings and Writings) and is now known as “The Method of Venice” which has changed the entire way of applying accounting. Even though governments had been recording business information long before Venice, Pacioli remained the first to use a system of debits and credits in journals and ledgers that is still the basis of the accounting system used today.
Then came the Industrial Revolution in the 1700s which saw advances in accounting systems. Namely starting to create a large group that is not part of the company management but still has an interest in the company’s results. These groups were the first shareholders and bondholders to provide external financing. Accounting became a profession first implemented in England and later in the United States.
In 1887 there were 31 accountants who created the American Association of Public Accountants, then around ten years later there was the first standard test for accountants which came into effect from then on. In 1896 Certified Professional Accountants (CPAs) were first licensed and the two main organizations in the accounting profession were The American Institute of Certified Public Accountants.
How Did Accounting Evolve?
At the end of the 20th century, the accounting industry began to grow and develop, so that many large accounting firms began to expand their services beyond the traditional audit function. Apart from that, it also adds many functions such as consultation forms, although this expansion still leads to places where it shouldn’t be. When an accountant’s responsibilities broaden beyond his duties as a financial supervisor, several accounting firms emerge which are involved in corporate scandals.
The biggest scandal that ever occurred was the Enron scandal in 2001 which had a broad impact on the accounting industry. One of the top US accounting firms named Arthur Andersen finally went out of business because Enron and the Sarbanes-Oxley Act tightened and limited consultations for accountants.
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The Future of Accounting
Almost like all professions in general, technology has an impact on developments in the world of accounting. Based on a survey by Accountancy Age which asked 250 accountants about the future of this profession, it turned out that around 89% of accountants surveyed said that technological advances were very positive for this profession and would create new opportunities for them.
Meanwhile, data shows that 75% said the technology they use makes an accountant’s job easier and gives them more time freedom to concentrate on increasing “value”. For example, now accountants can spend more time analyzing a company and providing more precise and accurate business advice with mastery of this technology.
This shows that the abilities and skills possessed by accountants will never be lost or obsolete, especially if they have greater mastery of technology. Someone who tries to pursue this profession needs to continue to maintain their skills because they may need new skills that may be needed as time goes by and technology develops.
So, that’s an explanation of basic accounting theory in relation to finance. Is Mudalovers interested in becoming an accountant? There are many things you need to learn to become a reliable accountant. Mudalovers can look for references on accounting theory in the article collection at mudacepat.com .