Without theories about the nature of assets and expenses it is impossible to answer this question. Using the theory that assets are sources of future economic benefits, it becomes clear that recording the payment as an asset is the method. Theories are studied for pragmatic reasons. While academics may like to study theory for its own sake, the theories covered in this Unit are presented for pragmatic reasons. The Nature of Accounting Theory Accounting is a utilitarian discipline.
People keep accounting records and prepare accounting reports because they are useful.
The theories which we will be examining were developed as ways of describing ways in which accounting is useful and in determining ways of making accounting more useful. Accounting theories cannot be proved true or false. The theories that are presented are conjectures which have been developed by experienced practitioners and academics and have been accepted by most members of the discipline. That does not mean to say that they cannot be questioned. Many practitioners and academics have criticised severely the theories presented here.