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Positive Accounting Theory - Research Paper Example
Author : nhudson
Finance & Accounting
Pages 5 (1255 words)
The theory of Positive Accounting seeks to make relevant accounting transactions based on the predictions of real world situations.The predictions of real world situations help small businesses in choosing the appropriate accounting policies …
The predictions of real world situations help small businesses in choosing the appropriate accounting policies that would help them in advancing. The predictions of positive accounting theory with regards to the real world situation go a long way in assisting firms to react positively to new standards of accounting introduced by the legal bodies. Moreover, the overall objective of the positive accounting theory is to enable firms to predict and understand their accounting policies choices. The theory also puts into consideration, the economic consequences of the policies on the firms and the economy in general. Positive Accounting Theory Small businesses organize their operations in an efficient manner using the positive accounting theory, which helps firms in maximizing economic opportunities for growth and survival in the business world. Due to the need for business operations efficiency, firms will need to minimize contract related costs. Ordinarily, contract related costs include negotiation costs, monitoring and renegotiation costs with regards to accounting variables in terms of financial ratios and net income accounting information. Minimization of contract related costs fully relies on the mandate of a firm in choosing the most appropriate accounting policies with regards to its operations. ...