What is Accounting Theory? A Detailed Overview for Beginners

Accounting theory plays a crucial role in business decision-making. It provides a framework for analyzing financial data, helping managers make informed choices regarding investments, budgeting, and financial planning. By ensuring consistency in financial reporting, accounting theory allows businesses to evaluate profitability, assess risks, and develop long-term strategies. Investors and creditors also rely on financial statements based on accounting theory to determine a company’s financial health and stability. Without accounting theory, financial data would be unreliable, leading to poor business decisions.