?Positive Accounting Essay

Positive economic theory and accounting patterns are nonsubjective and based on fact. Positive accounting focal points on analysing the economic statistics and informations at manus, and deducing decisions based on those figures. For illustration, if corporate growing allows a company to increase stockholder dividends over old dividend payments, positive accounting theory would reason that corporate growing causes a rise in shareholder dividends. Most clerking and informations aggregation involved with accounting relates to positive economic theory.

Normative Accounting

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Normative economic theory is subjective and aims to depict what the economic hereafter should be for a company or investor. As a consequence, normative accounting pattern is a signifier of value judgement that can present subjective morality into accounting. For illustration, if a company that increased dividend payments could utilize some of those financess to better corporate sustainability steps, a normative accounting statement would bespeak how much money should be invested in those steps to prolong corporate growing. Normative accounting besides deals with future events instead than past informations, which is the sphere of positive accounting patterns.

When to Use

Positive accounting patterns are best used to explicate past fiscal events, every bit good as the causes of a business’s or individual’s current fiscal standing. Determining why a company is runing at a net loss requires the positive accounting patterns of comparing existent gross to existent disbursals over the class of a twelvemonth. These accounting patterns are typically used to build fiscal paperss, such as balance sheets or hard currency flow statements. Normative accounting patterns are best used when seeking to put future economic policy based on theory. A company’s mission statement or the market schemes included in concern programs can be viewed as normative statements — they reflect the concern ideals that a company wants to carry through.

Working Together

Proper fiscal planning for any concern or single requires the usage of both positive and normative accounting patterns. On a big graduated table, economic experts indicate fiscal policies through normative accounting statements, but these normative statements must be based on the fiscal worlds found through positive accounting patterns. The factual-based patterns of positive accounting provide a foundation for companies to prosecute in normative accounting, and a more idealistic position of how the company can run while still gaining a net income.

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