Difference Between Positive and Normative Accounting

Difference between Positive and Normative Accounting Theories The positive theories of accounting describe, explain or predict what is happening in the world. This theory is derived using the Inductive Method. The method begins with available assumptionswhich enables describing of the current accounting practice in different firms. Descriptions given will further enhance logical analysis to make predictions of the most suitable or acceptable accounting practice or standards among different firms. In a way, positive theories provides a optional practices for firms to choose from. Nominative theories do not predict what practices are acceptable. This theories prescribe or tells what practice or standards are acceptable. Deductive method is used to derive these theories. Similar process used as in Inductive method, however, it does not consider other practices acceptable, rather, it comes up with new practices.

Financial report means any report about monitory matters. In other words a financial report is about the transactions that have financial effects. To run a business financial reports play important role as relevant financial information is transmitted to relevant users inside and outside the entity to help them in making decisions. For example; bank statement, aged debtors analysis report etc. Some financial statements are prepared on regular basis at equal intervals and some are prepared as and when needed. Some financial reports are meant only

for management and some are communicated to people outside the entity as well. Financial statements on the other hand are also financial reports. But in the business and accounting the term financial statement has more of a formal status. Usually financial statements refer to either a statement included in the complete set of general purpose financial statements or a complete set of general purpose financial statements. And due the same reason whenever the term financial statement is used, it is often assumed that a report is about entity’s financial position, financial performance, cash flows or fluctuations in equity.