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The purpose of this paper is to discuss how accounting theories differ from each other including real life examples that show contrasting accounting theories in the real world.
Accounting is a simple, yet complex field due to fact that there hundreds of different principles that establish the foundation for its practice. The accounting profession as a whole is self-regulated. There different accounting bodies that set the principles and standards that guide the profession. Two of those governing bodies are the FASB and ICPA. The primary accounting framework that is used by accountants to guide their everyday daily activities are the generally accepted accounting principles (GAAP). The GAAPs covered a wide variety of accounting subjects such as long lived assets, revenue recognition, and inventory topics (Accountingtools). An illustration of how the accounting profession has different treatments or accounting applications for the same economic event can be seen in the way accountants calculate depreciation of assets.
Accountants can choose one among various depreciation methods to calculate the depreciation of an asset. Five of the techniques that accountants can use to calculate depreciation are FIFO, LIFO, age-life method, straight, declining balance, and sum-of-the years’ digits method (Weygandt & Kieso & Kimmel, 2002, p.409). The final depreciation calculated by each of these methods gives an output that is different. This might seem a little confusing for a person outside accounting circles, but there is a financial logic behind the existence of so many depreciation methods. The reason there is so many accounting depreciation method is that these methods are available so that accountants can select the method that most appropriate depending on the circumstance. For example an accountant that is auditing a company dedicated to selling
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The primary difference can be realized through the changing thought process of entrepreneurial and managerial perspectives. The increasing volume of trade and business activities raises the necessity of advanced business models and theories. The companies have realized the essence of cross-functional integration in achieving common organisational long term and short term goals.
One of the most overarching perspectives is that financial accounting theory allows for deliberations and insights to be developed regarding more effective and efficient accounting practices. Within this context of understanding there are a number of theoretical elements, oftentimes competing, as to the proper nature of accounting progress.
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