Accounting Theory

Accounting Theory is to provide a logical framework for accounting practice. The basic assumptions, definitions, principles and concepts and how we derive them. It is concerned with improving financial accounting and reporting broad perspective, it includes a conceptual framework, accounting legislation, concepts, valuation models, and hypotheses and theories that allow researchers to analyze accounting in order to explain or predict phenomena related to accounting, such as how users employ accounting data or how preparers choose accounting methods.

The Early History of Accounting

Accounting records dating back several thousand years have been found in various parts of the world. These records indicate that all levels of development people desire information about their efforts and accomplishments.

According to Hain, "The Zenon papyri give evidence of a surprisingly elaborate accounting system which had been used in Greece since the fifth century B.C. and which, in the wake of Greek trade or conquest, gradually spread throughout the Eastern Mediterranean and Middle East." Zenon's accounting system contained provisions for responsibility accounting, a written record of all transactions, a personal account for wages paid to employees, inventory records, and all records of asset acquisitions and disposals. In addition, there is evidence that all the accounts were audited.

There were no organized professions or standards of qualifications, and accountant were trained through an apprenticeship system. Later, private commercial colleges began to emerge as the training grounds for accountants.

These institutions emphasized the quality of value, and discussions of the nature of value in accounting education. Subsequently, widespread speculation in the securities markets, watered stocks, and large monopolies that controlled segments of the U.S. economy resulted in the establishment of the progressive movement at the end on the nineteenth century.



Although most accountants did not necessarily subscribe to the desirability of the progressive reforms, the progressive movement conferred specific social obligations on accountants.

Accountants generally came to accept three general levels of progressiveness:

1. A fundamental faith in democracy, a concern for morality and justice, and a broad acceptance of the democracy, a concern for morality and justice, and a broad acceptance of the efficiency of education as a major tool in social amelioration;
2. An increased awareness of the idea of the social obligation of all segments of society and introduction of the idea of the public accountability of business and political leaders; and
3. An acceptance of pragmatism as the most relevant operative philosophy of the day.

During the period 1900-1915, the concept of income determination was not well developed. There was, however, a debate over which financial statement should be viewed as more important, the balance sheet or the income statement.

The 1904 International Congress of Accountants marked the initial development of the organized accounting profession in the United States, although there had been earlier attempts to organize and several states had state societies. At this meeting, the American Association of Public Accountants was formed as the professional organization of accountants in the United States.