Page 33 - Accountancy_F5

also expected legally is the twelve (12) practices and standards, guiding how
months period. In other words, on annual financial transactions should be recorded,
basis, financial statements of a particular reported, and interpreted. Taking accounting
business will be prepared to determine its practices in a strong theoretical framework,
performance and financial position. accounting theory ensures that financial
information is accurate, reliable, and useful,
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Accounting theories thus supporting effective decision-making
Accounting theories can ensure that and promoting trust in financial markets.
the financial statements are accurate, For example: Adoption of IFRS; Companies
reliable, and useful for decision-making listed on the Dar es Salaam Stock Exchange
by stakeholders. These theories provide (DSE) adopt IFRS to standardise their
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a foundation for the development of financial reporting practices. This allows for
accounting standards and practices that comparability with international companies
promote transparency and accountability. and ensures that financial statements

Accounting theories provide the framework provide relevant and reliable information to
and guidelines that underpin the practice both local and international investors. This
of accounting. These theories help in theory has the following key components:
understanding, explaining, and predicting Frameworks and principles: Provide the
accounting practices. Here are some key basis for standardising accounting practices,
accounting theories, along with examples ensuring consistency, reliability, and
relevant to Tanzania: comparability of financial statements.

Double entry theory Assumptions: Include assumptions such
The double-entry theory, also known as as the going concern (the business will
the double-entry accounting system, is a continue to operate indefinitely), economic
fundamental concept in accounting that entity (business transactions are separate
ensures the accuracy and integrity of fi- from those of owners), and monetary
nancial records. This theory dictates that unit (transactions are recorded in a stable
every financial transaction affects at least currency).
two accounts in such a way that the ac- Objectives: Aim to provide accurate,
counting equation (Assets = Liabilities + relevant, and useful financial information to
Equity) remains balanced. stakeholders, including investors, creditors,
and regulators.
Accounting theory Regulation and standardization:
This theory is a set of assumptions, Influence the creation and implementation
frameworks, and methodologies used of accounting standards like Generally
in the study and application of financial Accepted Accounting Principles (GAAP)
reporting principles. It serves as the and International Financial Reporting
foundation for developing accounting Standards (IFRS).

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