Normative Accounting Theory

Normative Accounting Theory focuses on determining how accounting should be practiced to achieve ideal outcomes. It provides guidelines and principles to shape accounting standards, emphasizing accuracy, fairness, and transparency. Unlike descriptive theories that explain current practices, normative theories suggest how accounting should be designed to best serve users' needs, such as investors and regulators, by improving decision-making and promoting ethical standards. In essence, it aims to establish the "best practices" for accounting based on what ideally ought to be, rather than just describing what is currently done.