Positive vs. Normative Accounting Theory

This assignment explores the contrasting perspectives of positive and normative accounting theories. It delves into how positive accounting analyzes real-world transactions and predicts future actions, while normative accounting guides policy makers based on theoretical principles. The assignment further discusses the challenges faced by normative followers in applying accounting principles and highlights how both theories complement each other.

Running head: ACCOUNTING THEORY
Accounting Theory
Name of Student:
Name of University:
Author’s Note:

1ACCOUNTING THEORY
Answer to part A
Positive accounting theory views the real-world transactions and events. It also examines
the accounting of these events. Positive accounting identifies the transaction’s actions and
understands the economic consequences. The application of this theory predicts on the way
companies will consider these events and the transactions made in future. The positive
accounting approach views the total of the contracts which has fundamentally dictated its
business on the driver of the company’s success and efficiency. It views the organization as the
total of the contracts they have entered (Erhard, Jensen & Zaffron, 2016).
On the contrary, normative accounting takes a different approach. This theory suggests
the accounting policy makers on what actions needs to taken as per the theoretical principle. It
needs to be understood that normative accounting is a more deductive process, which deduces to
specific policies. Positive accounting starts with specific policies and generalizes to higher level
principles (Glover, 2014).
Answer to part B
In general, the challenge of the normative followers is seen with establishing the
application of the accounting principle. During the signing of the contract the income and cost of
the contracts needs to be recognized appropriately (Mora & Walker, 2015). Depending on the
contract the companies may be willing to use a combination of both Positive accounting and
normative accounting. Henceforth, Positive accounting assist normative accounting principles
with a more practical approach. Normative theories ensure that the accounting of events don’t
deviate from appropriate economic concepts (Kamla, 2015).

2ACCOUNTING THEORY
References
Erhard, W., Jensen, M. C., & Zaffron, S. (2016). Integrity: A Positive Model that Incorporates
the Normative Phenomena of Morality, Ethics, and Legality--Abridged (English
Language Version).
Glover, J. (2014). Have Academic Accountants and Financial Accounting Standard Setters
Traded Places?. Accounting, Economics and Law Account. Econ. Law, 4(1), 17-26.
Kamla, R. (2015). Critical Muslim intellectuals’ thought: Possible contributions to the
development of emancipatory accounting thought. Critical Perspectives on
Accounting, 31, 64-74.
Mora, A., & Walker, M. (2015). The implications of research on accounting conservatism for
accounting standard setting. Accounting and Business Research, 45(5), 620-650.