An Introduction to Accounting Theory - SAGE Publications …

1 Accounting is frequently viewed as a dry, cold, and highly analytical discipline with very precise answers that are either correct or incor-rect. Nothing could be further from the truth. To take a simple example, assume two enterprises that are otherwise similar are valuing their inventory and cost of goods sold using different Accounting methods. Firm A selects LIFO (last-in, first-out) and Firm B selects FIFO (first-in, first-out), giving totally different but equally correct , one might say that a choice among inventory methods is merely an Accounting construct : the kinds of games accountants play that are solely of interest to them but have nothing to do with the real world.

2. Income numbers and various balance sheet ratios can affect dividend payments. 3. Income numbers and balance sheet ratios can affect the firm’s credit standing and, therefore, the cost of capital. 4. Different income numbers might affect the price of the firm’s stock if the stock is publicly traded and the market cannot “see through”

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