It’s a general perception by accounting professionals, that there is a solution to every accounting problem. It’s like living in a denial, but actually there are many issues that remain unresolved after having the knowledge of mere accounting. Salim gets admission in a college and advised by his close friends to take a major in accounting. Accounting will help Salim to acquire knowledge about the laws that govern business, the ethics of accountancy, statistics, and accounting theory. He will learn how to prepare the key documents that his job will involve, including business proposals, financial statements and tax returns.

Like accounting, accounting theory also provides a basis for prediction and explanation of accounting behaviors and events. It guides the development of new practices and procedures and help to understand current development in accounting practice. The accounting theory also provides the knowledge of Generally Accepted Accounting Principles, Contemporary issues and other developments in the field. Salim, being an accounting student is well aware about all the latest developments according to the particular guidelines.

a. In your opinion, why Salim should focus on understanding the problems of accounting practices and profession. Why is there a need of construction of accounting theory? Explain your answer.

b. Accounting theory serves as a frame of reference which is used to judge a particular technique of accounting. As per your understanding, explain how frame of reference would be structured in accounting theory?

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Definition of Accounting Theory 1 Provide a general frame of reference by which accounting practice can be evaluated and 2 Guide the development of new practices and procedures Accounting theory may a... View the full answer