Accounting Theory: A Critique of the Tentative Statement of Accounting Principles.

Abstract The executive committee of the American Accounting Association prepared and distributed in June 1936, a Tentative Statement of Accounting Principles underlying corporate financial statements. The committee attempted to set forth some of the bases upon which accounting statements rest. It was hoped that their publication would arise discussion and that a more comprehensive formulation will develop. The statement is an attempt to formulate theory, which will explain facts of accounting practice. The committee did not attempt to cover every phase of accounting theory. They limited themselves to special problems of the preparation of financial statements of the private corporation. Moreover they treated only three aspects of corporation accounting, which they classify as: the determination of costs and values; the measurement of income and the differentiation of capital and surplus. The entire statement consists of twenty propositions. Many accounting practitioners and writers have argued that it was illogical to use discounted future income as the basis of accounting valuation.