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SCHOOL OF ACCOUNTANCY

BKAF3083 ACCOUNTING THEORY


AND PRACTICE
FIRST SEMESTER 2015/2016

GROUP ASSIGNMENT 1
GROUP:
G
PREPARED FOR:
DR. MUHAMMAD SYAHIR BIN ABD. WAHAB

PREPARED BY:
NORSURIYA BINTI MOHAMAD SAAT
HAZRINI BINTI MAZLAN
NURUL FATEHAH BINTI ABD JALAL
SHARIFAH FIKRIYAH BT SYED ABDUL GHANI

DATE OF SUBMISSION:
25 OCTOBER 2015

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What is meant by accounting theory?


Explain about double entry system.
The double entry system of accounting or bookkeeping means that every business
transaction will involve two accounts (or more). For example, when a company borrows
money from its bank, the company's Cash account will increase and its liability account
Loans Payable will increase. If a company pays $200 for an advertisement, its Cash
account will decrease and its account Advertising Expense will increase.
Double entry also allows for the accounting equation (assets = liabilities + owner's equity)
to always be in balance. In our example involving Advertising Expense, the accounting
equation remained in balance because expenses cause owner's equity to decrease. In that
example, the asset Cash decreased and the owner's capital account within owner's equity
also decreased.
A third aspect of double entry is that the amounts entered into the general ledger accounts
as debits must be equal to the amounts entered as credits.

Explain about pragmatic, normative and positive accounting periods.


Pragmatic accounting periods:
Pragmatic accounting is relation pertains to the effect of words or symbols on
people. This is because every events and objects may effects peoples behaviour.
Besides, pragmatic also define as observe how people will react to the same
message in different ways such as same financial information which some would
using financial information to buy shares and some of using the financial
information to sell shares. In addition, pragmatic also related to decision model
is that accounting information must satisfy the information needs of the users.
Normative Accounting Periods (Prescriptive):
Normative accounting periods is exist since 1950s & 60s. The definition of the
normative is focus more on what should be done rather than what it is and
also attempts to discover the best ways of accounting for a transaction & useful in
making decision. Besides, the other definition of normative is about how the aim
is to describe what economic future should be in the future for a company or the
investor. As a result, normative accounting practice is a form of value judgment
that can introduce subjective morality into accounting. For example, if a company
that increased dividend payments could use some of those funds to improve
corporate sustainability measures, a normative accounting statement would
indicate how much money should be invested in those measures to sustain
corporate growth. Normative accounting also deals with future events rather than
past data, which is the domain of positive accounting practices.
Positive Accounting Periods (Descriptive):
Positive accounting is existed since 1970s. To define positive accounting periods
is where the focus of this type of theory is more on the inductive theory nature.
Compared to normative theory, positive theory is attempts to discover how

management and others decide which is the best way for them which is explain on
how and what, testing assumptions made by the normative theories. In fact,
Positive accounting focuses on analysing the economic statistics and data at hand,
and deriving conclusions based on those figures. For example, if corporate growth
allows a company to increase shareholder dividends over previous dividend
payments, positive accounting theory would conclude that corporate growth
causes a rise in stockholder dividends. Most bookkeeping and data collection
involved with accounting relates to positive economic theory.

Identify two main concentrations or paradigms during normative period.


True income: True income theorists concentrated on deriving a single measure for
assets and a unique (and correct) profit figure. However, there was no agreement on
what constituted a correct or true measure of value and profit. Much of the literature
during this period consisted of academic debate about the merits and demerits of
alternative measurement systems.

Decision-usefulness: The decision-usefulness approach assumes that the basic


objective of accounting is to aid the decision-making process of certain users of
accounting reports by providing useful, or relevant, accounting data; for example, to
help investors (current and potential) decide whether to buy, hold or sell shares. One
test of usefulness already discussed is the psychological pragmatic reaction to data.
Others do not identify a particular group but argue that all users have the same
requirement for accounting data.

What is the relevance of accounting history?