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Positive Accounting Theory Analysis

Question :

This topic consists about the impact of positive accounting theory and how this theory helps managers of organisation in planning it's resources and how this theory gives the insights about the costs incurred in the process of the organisation. This theory also comprises of the points related to the utilisation of financial resources and it also focuses on the development of the organisation.

  • Describe the importance of positive accounting theory in organisation.
  • Evaluate the effectiveness of positive accounting theory in planning the financial resources.
  • How positive accounting theory impacts the organisation performance and helps in analysing the performance.
Answer :

Positive Accounting theory

Positive Accounting theory helps in analysing the predictions of the economy and converts that predictions in terms of finance in order to analyse and predict the situation of the organisation in the market scenario. Positive Accounting theory focuses on delivering the predictions regarding the economic scenario in terms of the accounting of the organisation and among other firms and helps in analysing the impact of economic scenario on the organisation. This theory is used by the organisation in order to maximize their efficiency and to maximize the efficiency in the utilisation of the resources in the organisation. Accounting plays vital role in the efficiency and effectiveness of the organisation as it helps in analysing the financial information of the organisation and on the basis of that helps in implementing the suitable strategy for the better financial performance of the organisation. This theory helps in minimizing the costs linked to the contracts, as contracts costs includes negotiation cost, monitoring cost etc. these type of cost are minimized by the help of the positive accounting theory. This theory helps managers of the organisation in choosing and implementing the accounting policies which is beneficial for the organisation and also gives information about the scenario which helps them in deciding the best policies for the organisation.

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This theory helps organisation in minimizing the contract costs as well as deciding the best accounting policies for the organisation to provide the flexibility to the managers and helps in implementing the strategies tackle the economic issues. Positive accounting theory helps in enhancing the financial performance of the organisation and helps in understanding the effect of returns on the performance of the organisation. This theory also focuses on the variations recorded in the assumptions and how those variations could affect the organisation in terms of their financial performance. Every organisation sustainability depends on the performance of it's finance as the effective use of financial resources is the key to effective performance of the organisation and this theory is one of the effective accounting theories used by the managers of organisation in order to understand earnings of organisation. Accounting in the organisation helps in analysing the finance of the organisation and the impact of finance on the performance of the organisation as accounting helps in analysing the utilisation of the resources and helps in planning the effective utilisation of the resources as finance is the key to sustainability of the organisation. Positive accounting theory gives insight about the costs of contract and analyse the impact of contracts on the organisation and this theory helps in preparing the account for these cost and managers focuses on reducing these costs.

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This theory helps in auditing the finance of the information as this theory only records the information about what and when, it doesn't explains about how the changes can be made. Accounting helps in determining the potential of the financial resources of the organisation and helps in planning the resources in order to be effective and efficient. Positive accounting theory has it's setback as it is rely on the economic market and it's information is not perfect. Accounting consists of many theories as it helps in determining the several costs of the organisation and helps organisation in determining it's losses and profits. This theory has it's impact on the organisation as it only helps in reducing the contract costs but it doesn't have any effect on the organisation financial performance. This theory is also considered as not accurate due to it's inaccurate results and the number of flaws in the theory. Positive accounting theory has based on the three hypothesis first one is Positive accounting is the process for predicting actions as the accounting policies which companies using for its accounting. It is the branch for accounting research which seeks for explain, predict actual accounting practices. It is about the objectivity, most people value for the objectivity. This accounting theory helps businesses for the purpose which helps for accomplish its objectives.

It is the accounting practice for making good prediction for the world events, translate them for accounting transactions. It tries for explain the terms for the business which includes actions for accounting policies which companies chooses, how the compani8es reacts for the propose accounting standards. It is the process for understanding the choice for accounting policies across the various companies. In the context, profit after tax companies wants for maximize their prospects for the survival, which helps companies for efficient organising. It has various hypothesis theories which includes bonus plan, debt covenant, political costs etc. The process for achieving accounting theory which includes changing accounting policies, managing discretionary accruals, timing for adoption for the new accounting standards, changing variables R & D, advertising, repairs & maintenance, SPEs, capitalisation expenses etc.

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These accounting theory helps for company for adopting accounting policies which helps business for the higher profitability. Positive accounting theory focuses on providing the accounting figures and policies which can help in making the better strategies for the organisation and also focuses on providing the insights about the organisation finance. Organisation finance plays vital role in it's success as without the finances organisation cannot achieve it's goals and objectives. It is important for the organisation to plan their finance through the use of different accounting theories and positive accounting theory is one of the theories used by the managers in order to achieve the desired goals and obejctives.

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