The theory of accounting is a basic complex that studies the organization of accounting (financial, tax and management), as well as some related disciplines. Accounting theory is the basis of all methods of maintaining financial and tax documentation at the enterprise.
The purpose of accounting theory
The word "theory" came to us from the Greek language. And it means: “examination” or “research”. Therefore, you can still define the concept of a science that studies accounting: a theory that explores and interprets the foundations of the subject of the profession of an accountant or bookkeeper.
The study of the theory of accounting is necessary to obtain a correct understanding and presentation of the essence of the analysis and systematization of all economic and financial information of the organization, expressed in monetary form. The theory of accounting determines the place of processing financial and tax documents in the economic system of enterprise management, as well as the main economic accounting categories used in practical business.
Knowledge of the theoretical foundations of accounting is especially important for understanding the functioning of the company, starting with its creation, that is, registering the legal form of incorporation, creating authorized capital and then carrying out all the economic and financial operations necessary for entrepreneurship. All numerical data obtained during the course of business must be recorded in primary documents and registers, with the help of which the financial information obtained can be processed using accounting accounts and the financial result necessary for calculating taxes should be displayed.
Calculation methods
The theory of accounting is of lasting importance, both for profit and its calculation. Using different calculation methods, it is possible to show profit with the same results in one case and loss in another. An example of this reporting would be the well-known case of the German concern Daimler-Benz. In two reports compiled by the group’s accountant on the same data, completely different results were derived. The report for the New York Stock Exchange showed profit, and the document for German tax authorities showed a loss. This discrepancy is explained by the different accounting methodology of America and Germany. Such cases have led to the emergence of several concepts or approaches to the theory of accounting.
Accounting theory approaches
Today, accounting theory is characterized by the following concepts:
- tax;
- economic;
- legal;
- behavioral;
- ethical;
- structural.
The most common is the tax approach. Although using it alone in the entire accounting system used is somewhat unproductive. The purpose of tax accounting is to accurately calculate the numerical value of mandatory budget contributions, rather than analyzing the prospects and opportunities for generating greater profits and reducing costs. Based on the fact that the tax authorities are not at all interested in how the company’s income is measured, they began to use mixed approaches. Therefore, in the structure of accounting, both the tax accounting method and the financial (economic) method are used.
Nevertheless, the application of tax standards had a very big impact on the development of accounting and its practice. Accounting activity has been significantly improved, has become more consistent and meaningful. An example is the mandatory depreciation requirement introduced by tax regulations in 1909. This document served as an impetus for the search for improvement of the methods of depreciation on movable and immovable property, their systematization, as well as the use of more convenient concepts for determining depreciation costs.