Discuss the Difference Between Normative and Positive Accounting Theory

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The Answer is There are two basic types of theory: normative and positive. Normative theories are based on sets of goals that proponents maintain prescribe the way things should be. However, there is no set of goals that is universally accepted by accountants. As a consequence, normative accounting theories are usually acceptable only to those individuals who agree with the assumptions on which they are based. Nevertheless, most accounting theories are normative because they are based on certain objectives of financial reporting.
Positive theories attempt to explain observed phenomena. They describe what is without indicating how things should be. The extreme diversity of accounting practices and application has made development of a comprehensive description of accounting difficult. Concurrently, to become a theory, description must have explanatory value. For example, not only must the use of historical cost be observed, but under positive theory that use must also be explained. Positive accounting theory has arisen because existing theory does not fully explain accounting practice.

Discuss the Difference Between Normative and Positive Accounting Theory

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