ACCOUNTING THEORY Definition

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ACCOUNTING THEORY tries to describe the role of accounting and is composed of four types of accounting theory: classical inductive theories, income theories, decision usefulness theories, and information economics / agency theories: a. Classical inductive theories are attempts to find the principles on which current accounting processes are based; b. Income theories try to identify the real profit of an organization; c. Decision usefulness theories attempt to describe accounting as a process of providing the relevant information to the relevant decision makers; and, d. The information economics / agency theories of accounting see accounting information as a good to be traded between rational agents each acting in their own self-interest.

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COMMANDER THEORY holds that the goals of the managers of the entity are as equally important as the stockholders. The theory assumes that the "commanders" view will transpose the view of the investor.

BREAK-EVEN ANALYSIS is an analysis method used to determine the number of jobs or products that need to be sold to reach a break-even point in a business.

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