In this chapter, we will discuss the rules & conventions of accounting. The rules and conventions of accounting are commonly referred to as the conceptual framework of accounting. As with any discipline or body of knowledge, some underlying theoretical structure is required if a logical and useful set of practices and procedures are to be developed for reaching the goals of the profession and for expanding knowledge in that field. Such a body of principles is needed to help answer new questions that arise.

Accounting theory may be defined as logical reasoning in the form of a set of broad principles that

• Provide a general frame of reference by which accounting practice can be evaluated.
• Guide the development of new practices & procedures.
• Provide a coherent set of logical principles that form the general frame of reference for the evaluation and development of sound accounting practices.