Accounting

Accounting studies the measurement, processing, and communication of financial information about organizations.

Scope

It covers financial and managerial accounting, auditing, accounting standards and theory, and the role of accounting information in markets and decisions.

Core questions

• How should financial information be measured and reported?
• What is the role of accounting in markets?
• How do accounting standards arise?
• How does accounting information affect decisions?

Key concepts

• Financial accounting
• Managerial accounting
• Auditing
• Accounting standards
• Positive accounting theory
• Disclosure

Key theories

Accounting standards theory

Paton and Littleton framed the conceptual foundations of corporate accounting standards.

Positive accounting theory

Watts and Zimmerman explained accounting choices and standard-setting through economic incentives.

History

Accounting thought moved from normative standard-setting theory (Paton & Littleton) to positive, economics-based theories of accounting choice (Watts & Zimmerman) and capital-markets research.

Debates

Normative versus positive accounting

Whether accounting research should prescribe how to account or explain and predict actual accounting choices.

Key figures

• William Paton
• A. C. Littleton
• Ross Watts
• Jerold Zimmerman

Seminal works

• paton-littleton-1940
• watts-zimmerman-1978

Frequently asked questions

What is the difference between financial and managerial accounting?

Financial accounting reports to external parties under standards; managerial accounting provides information for internal decision-making.