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Summary Of Accounting Theory Essay

480 words - 2 pages

Agency theory is based on the assumption that the individuals act to maximize their own expected utilities

Relationship between one person (principal) entrusted to another person (the agent)

*Loss associated with no being able to fully align the intrst of principal with their agent
*cost borne by the agent as a result of the aligning their interst
i)agent prepare the fs(effort & time)
ii)Constraints manaher xtvt
*the cost observing & monitoring the agent’s behaviour

I )auditing cost
ii)Budget restriction
iii) Operating rules

Agency Costs
-due to self interst, the agent may act for their best interest.
-Agency problem give rises the agency costs

*Contract under ...view middle of the document...

-Explain what happening in real world
-Explaining reasons for current practice
Predicting the role of accounting information in decision making
-deriving a single measure for assets and a unique profit figure
-no agreement on what constituted a correct or true measure of value of profit
-accounting researcher became more concerned with policy recommendation
-what should be done

-Basic objective of accounting is to aid the decision making process for certain users
EG: to help investor to buy or sell share
-Interpretation of traditional historical cost acctg is syntactic theory
-semantic =transaction & exchanges recorded in voucher, journal,ledger of buss
-this info will manipulated to historical cost accounting
-theory has semantic content only on the basis of its input
-no independent empirical operation to verify the calculated outputs
-Relate the basic concept of theory to object in real world
Premise 1 : All asset a/c has dr balance
Premise 2: Sales return a/c is not an asset
Conclusion: Sales return has dr balance
-Conclusion are based on accuracy and actual return
-include logical relationship
-relies upon on premises or statement
Premise 1 : All a/c relating to asset have dr balance

Premise 2: Accumulated depr a/c relates to assets

Conclusion: Accumulated
depr has dr balance

-Even though the conclusion was wrong, but does not matter, as long as it is logic

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