The History Of Accounting Theory Accounting Essay

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In the introduction, accounting is included by analysing, collecting and communicating the financial information. Accountants can make the financial statement to reflect the situation about the company in different information.

This essay is evaluating about the 'Accounting only has one role which is to satisfy user needs'. In fact, accounting can play different roles to satisfy the different users need, there have nine user groups: owners, managers, lenders, investment analysts suppliers, government, competitors and costumers. There is going to make some examples to explain the accounting has different roles to satisfy the users need and describe the detail in each user.

Accounting is taking the different roles in different user, such as the accountants make the financial statements to let different users know the different information. There is going to describe the financial statement play the different roles in each user: 1. Owners are the shareholders in the company; they can invest more in the company and sell all, of the investment currently held. This would involve an assessment of the likely risks and returns associated with company (1. Dugdale, D., Jones, C. and Green, S., Contemporary Management Accounting Practices in UK Manufacturing, CIMA Research Publication, vol. 1, no. 13, 2005). According to the accountants' financial statement, the owners can know the profit and situation about the company. After that, if the company has the good income, the owners can make the decision to reward the managers. Finally, according the financial performance in the financial statement shows, the owners can decide continue to invest company or sell the stock of the company to the other people. 2. Mangers are the management layer in the company; they are in charge of whole company's daily operation. They can know the performance of the business needs to be improved and they can use the performance to compare the earlier plan with the present plan to decide to change company's future direction or not. According to the financial statement, managers can know the company's ability to perform the new products or projects. All in all, financial statement can let the managers command the method of knowledge management operating about the company. 3. Lenders are who lend the money to the company and require repayment of any existing loans. For example, the company's financial statement can let the lenders know the profit and the liability in the company; they can confirm that the company has ability to repay the money and decide lend the money to the company. Finally, the lenders can make the decision to lend money to the company which it has ability to repay money by using the financial statement. 4. Investment analysts is the man who give the advisement to the clients to invest the company. Investment analysts can analise the data by using the accounting statement and give suggestion to the clients. The investment analysts can give an assessment of the likely risks and the future returns with the company. 5. The suppliers are the people who can supply the services or other material to the company. According to the financial statement, they can know about the company's profit and loss to make an assessment of the company's ability to pay for any materials and other services supplied. 6. The government is the main centre of the city or a country. Government can know about the company's profit and decide the company should pay how much of the tax; then the government can complies and agree the pricing policies for the company. When the company have some problems, government can give some financial support. 7. The employee is the people who work in the company. The employees use the financial statement to know about the company's business circumstance to demand the higher rewards and decide continues working for the company or not. The future plans, profits and financial strength of the business are likely to be of particular interest when making these decisions. 8. The competitors are the best compete against the company. For example, the NIKE Company is to sell the sports goods and its competitor is the named Adidas. The competitors can use the financial statement to know about what is selling better for the company and make the corresponding action to ensure the market position. 9. The costumers are people who take further motor policies with the company. According to the financial statement, the costumers might assessment of the company's ability to continue in business and to meet their needs.

This part is describing about the theory of financial accounting. Firstly, theory is a contemplative and rational type of abstract or generalizing thinking, or the results of such thinking and depending on the context. The accounting researcher Hendriksen (1970,p.1) said that, A coherent set of hypothetical, conceptual and pragmatic principles forming the general framework if teference for a field of inquiry ( 2.Craig Deegan & Jeffrey Unerman, 'Chepter 1 Inro duction to Financial Accounting Theory', Financial Accounting Theory ). Secondly, financial accounting theory is complexity of information in financial accounting and reporting, because people have different ideas from each other and it can affect the other people's decisions. For example, if a investor wants to get the success in his company, he may react positively to the valuation of certain firm assets at market value on the grounds that this will help to predict future firm performance. Other investors may be less positive, they may be feeling that market value information is unreliable, or simply because they are used to historical cost information. Finally, financial accounting theory can be able to predict the phenomenon was not observed in accounting. For example, according to the financial statement, the investors can find the difference between the profit and loss to make the decisions about the company, and decide the company's operations policy in the future. All in all, financial accounting theory is play an important role in the market, because the accountants can use it to show the company' operations policy to the investors.

Knowledge is information that changes something or somebody; it will become grounds for actions, or by making an individual or an institution capable of different or more effective action (3. Peter F. Drucker, The New Realities). There is explicit knowledge and tacit knowledge is included by the knowledge. Explicit knowledge is articulated into formal language, including grammatical statements, words and numbers, mathematical expressions, specifications, manuals. It can enable people to know and learn about the new information easily. Tacit knowledge is the personal knowledge including the individual experience and intangible factors. For example, there are the personal beliefs, suggestions and the value system. Tacit knowledge is very hard to show with the simple language, it contains subjective insights, intuitions, and hunches (4. Nonaka, I., Takeuchi, H. (1995). The Knowledge Creating Company. New York: Oxford University Press). In fact, in accounting, knowledge is playing an important role in it. People use their subjective insights, intuitions, and hunches to learn the knowledge of the accounting; they can learn the knowledge of accounting use it in the financial statement and use it to calculate the profit or loss in the company. All in all, knowledge of the accounting is helpful and important for the company.


Conceptual Framework of accounting is providing accountants with a constitution regarding the recording and reporting of financial information. There is no definitive view of what constitutes a 'conceptual framework'. The FASB in the USA, which exploit one of the first conceptual frameworks in accounting, defined its conceptual framework as 'a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards' (5. Statement of Financial Accounting Concepts No. 1: Objectives of Financial Reporting by Business Enterprises, 1978). Conceptual framework of accounting is the imaging thing for people easier to knowledge about the accounting; people can use the framework to make the budget for the company. On the basis of the conceptual framework, accountants can better to make the financial statement and give the detail report to the company's owner to make decision for the operation in future.

Function of the accounting can provides information for outsiders, for example, banks and other creditors, shareholders, employees and government. There are three main financial statements in accounting: income statement, balance sheet and cash flow statement. Firstly, the company managers can use the income statement to know the profit and loss in the company, customers can know that the company is good or not. Additionally, the balance sheet is reflects that the liabilities of the company, it will enable the investor to know about the credits of the company, and make the decision to invest this company or not. Finally, cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet (6. Helfert, Erich A. (2001). "The Nature of Financial Statements: The Cash Flow Statement". Financial Analysis - Tools and Techniques - A Guide for Managers. McGraw-Hill. p. 42). All in all, the function of accounting can enable the users to know more about the company by using the financial statements.

True and fair view means the truth and ethics to show people's opinion. It is one of the most prominent principles of accounting; it suggests that the company should provide a true and fair view about its financial conditions and operating results but it is not means the absolute truth about the companies. The principles of the true and fair view is about comparative truth when the companies using the financial statements. The Joint-Stock Companies Act 1844 initiated the annual statutory audit for companies formed under its auspices. This Act required companies to prepare a `full and fair' balance sheet; although it did not define this phrase, it `was generally taken to mean that the balance sheet properly portrayed the company's solvency for the benefit of its bankers and creditors'(7. Lee, T.A. (1972) Company Auditing: Concepts and Practices. Edinburgh: ICAS). The true and fair view is rather defined operationally; it is thought to be better and better by complying with all other lower accounting principles.