If it needs to be understandable and reliable, account must be taken to the specific rules and regulations. Babylonian proportions would be chaos if everyone would use their own grammar and dictionary – nobody would understand anyone else. Likewise, it is essential that accounting is applied in accordance with generally accepted rules.
The first precondition is that accounting should be the same as or must correspond to the fundamental truths to which our economic system operates; the current economic and business practices and the applicable law, which are contained in legislative or public law. Consequently, it is important to be consistent in accounting practice; that is to say, a specific circumstance, wherever we can meet, everyone has to deal exactly the same in the accounting process
Accounting theory creates a framework that ensures accounting practice meets compliance requirements and is unified. This theory belongs to principles, policies, methods, procedures and conventions. The ever-increasing scope and complexity of our economic system requires a proper accounting adjustment process so that relevant information on economic activities can be recorded. It is essential that accountants understand this adaptation process; In addition, the prerequisite for such understanding is not only the theory of accounting but also the structure of the theory.
Accounting theory is based on a series of fundamental economic truths that are dual in nature. First of all, accounting theory is based on generally accepted proposals in the economic order of the given society. For example, consider the concept of personal property: the general accepted principle of our society is the exclusive right of every person to their own things – their personal property and no one else. This concept is a fundamental economic truth.
Second, basic economic truths have characteristics similar to natural laws in the sense that specific causes have a concrete effect. For example, if a person comes from a larger transaction than the transaction, the amount of the surplus of his net worth – his wealth will increase. This is also a fundamental economic truth. These economic truths are shaped by concepts and ideas. The concept is a generally accepted view of a particular phenomenon that is defined by specific terms. Postulate is a generally accepted hypothesis or conditional assumption, which is the basis for formulating the principles.
In formulating accounting theory, concepts and postulates serve as a formulation of fundamental truths or suggestions that are the basis of theory. They are not trying to impose the operation of the accounting process, but simply the basis of the accounting structure.
Source by sbobet