Positive Accounting Essay

Positive economic theory and write up practices are objective and found on fact. Positive accounting focuses on analyzing the economic statistics and info at hand, and deriving conclusions based on those figures. For example, if corporate growth allows a company to increase shareowner dividends over previous dividend payments, positive accounting theory would conclude that corporate growth causes a rise in stockholder dividends. Most bookkeeping and data collection involved with accounting relates to positive economic theory.Normative AccountingNormative economic theory is subjective and aims to describe what the economic future should be for a company or investor. As a result, normative accounting practice is a form of value judgment that can introduce subjective morality into accounting. For example, if a company that increased dividend payments could use some of those funds to improve corporate sustainability measures, a normative accounting statement would indicate how fr equently money should be invested in those measures to sustain corporate growth. Normative accounting also deals with future events rather than past data, which is the domain of positive accounting practices.When to drug abusePositive accounting practices are best used to explain past financial events, as well as the causes of a businesss or individuals current financial standing. Determining why a company is operating at a net loss requires the positive accounting practices of comparing actual revenue to actual expenses over the course of a year. These accounting practices are typically used to construct financial documents, such as balance sheets or cash flow statements. Normative accounting practices are best used when trying to set future economic policy based on theory. A companys mission statement or the market strategies included in business plans can be viewed as normative statements they reflect the business ideals that a company wants to accomplish.Working TogetherProper financial planning for any business or individual requires the use of twain positive and normative accounting practices. On a large scale,economists indicate financial policies through normative accounting statements, but these normative statements must be based on the financial realities found through positive accounting practices. The factual-based practices of positive accounting provide a foundation for companies to engage in normative accounting, and a more idealistic view of how the company can operate while still earning a profit. See more athttp//wiki.fool.com/Differences_Between_Positive_%26_Normative_Accountingsthash.1hNg6Mt3.dpuf