What is normative accounting?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 rohith asked almost 3 years ago

Hi Friends, I am Rohith. I am preparing for CA Intermediate | CA IPCC exam. Can I know, What is normative accounting?

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11 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Surbhi answered over 2 years ago

Hi, A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost. Regards Surbhi

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 acharya answered over 2 years ago

hi, NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. Normative theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor. For example, the Wizard reported that Montgomery Ward would fail. However, the Wizard always reports that every company will fail or lose its self identity in a pattern of acquisitions and mergers. Eventually, he will always be correct.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 HIMANSHU answered almost 3 years ago

---------- ---------------------------------- A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost. Thanks & Regards

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered almost 3 years ago

NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. Normative theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor. For example, the Wizard reported that Montgomery Ward would fail. However, the Wizard always reports that every company will fail or lose its self identity in a pattern of acquisitions and mergers. Eventually, he will always be correct.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered almost 3 years ago

--A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

> Normative accounting --A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost. --NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. --As we would appreciate, the method of accounting predominantly used today is based on historical cost accounting. The very fact that historical cost accounting has continued to be applied by business entities has been used by a number of academics to support its continued use.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered almost 3 years ago

A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost. The case of accounting for changing price There are various prescriptive theories of accounting that were advanced by various people on the basis that historical cost accounting has too many shortcomings, particularly in times of rising prices. Page 83 Chapter 4 1. Historical cost accounting in times of rising prices Historical cost accounting assumes that money holds a constant purchasing power. (Page 84) As Elliot states: “An implicit and troublesome assumption in the historical cost model is that the monetary unit is fixed and constant over time. Argument for the limitation:- However, there are three components of the modern economy that makes this assumption less valid than it was at the time the model was developed.”  One component is specific price-level changes, occasioned by such things a technological advances and shifts in consumer preferences;  Second component is general price-level changes(inflation); and  Third component is the fluctuation in exchange rates for currencies. Thus, the book value of a company, as reported in financial statements, only coincidental reflects the current value of assets. (Page 84 of Financial Accounting Theory – Deegan) As we would appreciate, the method of accounting predominantly used today is based on historical cost accounting. The very fact that historical cost accounting has continued to be applied by business entities has been used by a number of academics to support its continued use.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered almost 3 years ago

NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives.

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Picsjoin 2017224123730582 Archana answered almost 3 years ago

Hie Rohith, **Definition of Normative Accounting** A theory that is not based on observation, but on how an accounting process should be done. Researchers believe this theory utilizes several different approaches to end up with one correct accounting opinion. This method uses a formula to figure out income based on value, not cost.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered almost 3 years ago

NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. Normative theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor.

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Open uri20170510 32134 s5bvk0?1494421637 ARJUN PRATAP SINGH answered almost 3 years ago

"Dear Friend, as far as your query is concerned that What is normative accounting? Let me informed that NORMATIVE ACCOUNTING THEORY is where theorists tend to advocate their opinions on accounting based upon subjective opinion, deductive logic, and inductive methods. In the final analysis, nearly all standards are based upon normative theory. Generally conclude that some accounting rule is better or worse than its alternatives. Normative theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor. For example, the Wizard reported that Montgomery Ward would fail. However, the Wizard always reports that every company will fail or lose its self identity in a pattern of acquisitions and mergers. Eventually, he will always be correct. Hope answer was helpful to you Regards, Arjun Pratap Singh "

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