An Accounting Theory
Lectured by Dr. Siriluck Sutthachai
Accounting Department
Faculty of Management Science
Khon Kaen Univeresity
Khon Kaen, Thailand
Definitions of Accounting
Accounting : An art or a science??
Definitions of Accounting
Accounting is the art of recording, classifying,
and summarizing in a significant manner and in
terms of money, transactions and events which
are, in part at least, of a financial character, and
interpreting the results thereof.
Definitions of Accounting
Accounting is a service activity. Its function is to
provide quantitative information, primarily
financial in nature, about economic entities
that is intended to be useful in making
economic decisions, in making reasoned
choices among courses of actions.
The Structure of An Accounting
Theory
1. Objectives of Financial Statements
2a. The Postulates of
Accounting
2b. The Theoretical Concepts
of Accounting
3. The Principles of Accounting
4. The Accounting Techniques
The Objectives of Financial
Statements
 The approach in formulating the objectives of
accounting
Conflicts of interests
 firms: firm-oriented
 users: user-oriented
 The accounting profession: profession-oriented
The Objectives of Financial
Statements
 Trueblood Committee developing the
objectives of financial statements determines:
who needs financial statements;
What information they need;
How much of the needed information can be
provided through accounting; and
What framework is required to provide the needed
information.
The Objectives of Financial
Statements
To provide information on which to base
decision making.
Decision
Making
General users
Uses
Earning power
Organizations
Society
Accountability
Nature of Information:
Factual and Interpretative
Balance sheet
Income
statements
Financial
activities
Financial
forecasts
The Accounting Postulates
 Accounting postulates: self-evident statements
that portray the economic, political, sociological
and legal environments in which accounting must
operate.
The Entity Postulate (หลักการเป็ นหน่วยงาน)
The Going-Concern Postulate (หลักการดาเนินงานต่อเนื่อง)
The Unit-of-Measure Postulate (หลักหน่วยเงินตรา)
The Accounting-Period Postulate (หลักงวดเวลา)
The Theoretical Concepts of
Accounting
 Theoretical concepts of accounting: selfevident statements that portray the nature of
accounting entities operating in a free economy
characterized by private ownership of property.
The Proprietary Theory (ทฤษฎีความเป็ นเจ้ าของ)
The Entity Theory (ทฤษฎีความเป็ นหน่วยงาน)
The Fund Theory (ทฤษฎีเงินกองทุน)
The Theoretical Concepts
 Proprietary Theory
Owner is the centre of attention.
Balance Sheet:
 Equation A-L = P
Income:
 Income is the increase in the wealth of the owner
from business operations during a given period.
The Theoretical Concepts
 Proprietary Theory
In practice,
 Dividends are considered a distribution of
earnings rather than expenses because they are
payments to owners.
 Interest on debts and income taxes are expenses
because they reduce the owner’s wealth.
 Earning per share
 Financial capital concept
Limitations: the development of nature of
business and laws
The Theoretical Concepts
 The Entity Theory
The enterprise is separated from its owners and
accounting procedures are conducted from the
viewpoint of the entity.
2 versions of the entity theory:
 Traditional view: the business firm operates for the
benefit of the equityholders, those who provide
funds for the entity.
 New interpretation: the entity is seen as in
business for itself and interested in its own
survival.
The Theoretical Concepts
 The Entity Theory
Balance sheet:
 Equation Assets = Equities
Income:
 Income is defined as a change in the ‘net assets’
of the firm rather than ‘capital’.
In practice,
 Interest charges should be considered a
distribution of earnings rather than expenses.
 Physical capital concept
The Theoretical Concepts
 The Fund theory:
A fund is a unit of operations, a centre of interest,
with specified purpose or set of activities,
consisting of assets and equities.
Equation: Assets = Restrictions on Assets
The broad concept of fund theory introduce the
cash flow statement.
The Theoretical Concepts
 The commander theory
It focuses on effective economic control of the
resources.
People is the centre of actions; people who control
over the company’s resources.
 The investor theory
Accounting functions and financial statements
should take the point of view of investors who are
shareholders and creditors.
Accounting equation: Assets = specific equities +
residual equities
The Theoretical Concepts
 The Enterprise theory
It views the enterprise as a social institution where
decisions are made that affect a number of
interested parties.
Management is viewed as the guardian of the
company who is responsible for its survival and
growth. Managers act as a mediative function among
the various interested parties.
The theory introduces the concept of ‘value-added
income’.
The Accounting Principles
 Accounting principles: general decision rules,
derived from both the objectives and the
theoretical concepts of accounting, that govern
the development of accounting techniques.
The Cost Principle (หลักราคาทุน)
The Revenue Principle (หลักการเกิดขึน้ ของรายได้ )
The Matching Principle (หลักการจับคู่)
The Accounting Principles
The Objectivity Principle (หลักฐานอันเที่ยงธรรม)
The Consistency Principle (หลักความสม่าเสมอ)
The Full Disclosure Principle (หลักการเปิ ดเผยข้ อมูล)
The Conservatism Principle (หลักความระมัดระวัง)
The Materiality Principle (ความมีนัยสาคัญ)
The Uniformity and Comparability Principles
(ความเปรี ยบเทียบได้ )
Timeliness of Accounting Earnings and
Conservatism (ความทันเวลาและความระมัดระวัง)