Financial Accounting Theory

Financial Accounting Theory is the study of the principles and frameworks that guide the recording, reporting, and interpretation of financial information. It explains how and why financial statements are prepared and the concepts behind accounting practices, like the matching principle or revenue recognition. By understanding this theory, individuals can appreciate how businesses convey their financial health and performance, influencing decisions made by investors, creditors, and regulators. Ultimately, it helps ensure transparency, consistency, and reliability in financial reporting, serving as a foundation for effective economic decision-making.