Introduction to Accounting Theory, Slides of Financial Accounting

Download Introduction to Accounting Theory and more Slides Financial Accounting in PDF only on Docsity!

Chapter 1:

Introduction to Accounting Theory

What is Accounting Theory

Accounting Theory & Policy Making

Measurement

Accounting Theory is defined as

the basic

assumptions definitions principles and concepts that underlie the rule making by a legislative body

the reporting of

accounting and financial information

applicable to financial

accounting, not to

governmental or managerial

Accounting Theory & Policy Making

3 inputs to policy making function

Accounting Theory

Political Factors

Economic Conditions

Once policy is made

Accounting Practice implements the policy

Users observe effects of implementation

Financial Accounting Environment

Accounting Theory

Political Factors

Economic Conditions

Users of Accounting Data and Reports

Accounting Practice

Accounting Policy Making

Measurement is defined as

the assignment of

numbers to the

attributes or

properties being

measured

Measurement Categories

Direct or Indirect

Direct is preferable; managers like Indirect is a roundabout way of making the measurement

Assessment and Prediction

Assessment measures are concerned with particular attributes of objects Prediction measures are concerned with factors that may be indicative of conditions in the future

Measurement Types (NOIR)

Nominal

Most simple Groups like objects (e.g., chart of accounts)

Ordinal

Indicates an order of preference Degree of preference among the ranks is not necessarily the same

Interval: change in the attribute being measured is equal

Ratio: same as interval, but zero point has a unique

quality

Quality of Measurements

Objectivity or Verifiability

The degree of agreement among measurers

Statistically, this means the less variance there

is, the higher the objectivity

Bias

Timeliness

Cost Constraint