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📒 Theories of financial accounting

Within Financial Accounting two mainstreams theories can be found. Normative and positive theories. Both are based on rationale motives.

Normative theories are descriptive; they recommend what should happen. It is not necessarily based on what actually happens in reality, but what it should be given its purpose. Typically normative theories are developed based on observations and research in the real world. The basis for this research comes from positive theories. Positive theories describe, explain or predict activities based on real observations.

Conceptual framework

For external reporting a conceptual framework exists. This framework, created by regulators, describe the rules for a valid and standardised report. It is a normative theory that describe the basic principles when creating an external report. It tries to answer the goal and most important users of the report, and what information they need.

📒 Theories of financial accounting