6. “Normative accounting theories have limitations and should be ignored in developing accounting policies. In contrast, positive accounting theories have been extensively applied in research to...

DIFFERENCES BETWEEN NORMATIVE AND POSITIVE ACCOUNTING THEORIES
Table of Contents
Introduction    3
Positive Accounting    3
Normative Accounting    3
Normative Accounting Theories have Limitations and These Should be ignored in Developing Accounting Policies    4
Positive Accounting Theories Developed Widely in Analysis to Learn Capital Markets and to Help Establish Effective Accounting Policies    4
Conclusion    5
References    6
Introduction
Many business owners, managers and shareholders want to view their company's financial position and results through a transparent system; they choose to convey content in a detailed and understandable manner. As mentioned by Cardao-Pito and Silva Ferreira (2018), accountants may have such a system; it is typically the result of ideas implemented by thought. Two widely used approaches-positive accounting (a realistic approach) and normative accounting (a conceptual framework)-and focusing at whichever of the two gives the best overall image of the financial performance of a company.
Positive Accounting
Positive accounting philosophy, called the 'practical approach,' looks at what is occurring in a company presently; it centres on cold, concrete statistics. Through accounting and reporting and data collection this method is frequently been using; positive accounting investigates a company's real-world expenses and contrasts profits with outgoings to detect any differences. This method lets the accountant see whether a company would make money or losing money. The theory offers a structure for accountants, upon which to determine how the business can account for events done forward. Here is an illustration of positive accounting scenario – Alsharari (2019), if a company has had a very good financial year, it would have the financial flexibility to raise dividend payments to investors in the next year. Positive accounting theory would conclude from it that corporate growth triggers a shareholder transactions rise.
Normative Accounting
Unlike observation-based positive accounting, normative accounting theory informs decision makers about how it should be achieve because of a general principle; it begins with a theory and derives concrete policies from it. Although positive accounting looks to past results, in the future, normative deals with events. As stated by Schroeder, Clark and Cathey (2019), it is most widely used in a company's advertisement or strategic plan, which seeks to outline what the company's future, would look like financially...