In this essay I will discuss some aspects of accounting theories and their developments. I will also argue entity and proprietary theory and how they have contributed to the development of existing accounting practices. I will also highlight the strengths and weakness of the two theories and the impact it has on current accounting practices.

Accounting theories can be said to be a process of reasoning problems by means of distinguishing the basic relationship, which in turn simplifies the issues to a generalized form that is easy to understand. Accounting theories are a coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry (Hendriksen). Theories are words or other symbols made in a statement and do not have a physical form and can also be said to be a set of logical reasoning in the form of a set of broad principles that has two important functions. Fist they provide a general framework of reference by which accounting practice can be evaluated and secondly guide the development of new practices and procedures (Hendriksen). These two definitions of accounting theory underpin the use of theory as a guide to accounting practices.

While looking at the Entity and Proprietary theory, it is important to note that the main difference between the two theories is that under the proprietary theory transaction are recorded, assets are valued and account statements are prepared in the view point of the proprietor. However under entity theory these actions are performed in the viewpoint of the company as a going concern. (Edwards, 1989)

The chief architect of Entity Theory was William A. Paton. The Entity Theory sees the firm and the owners as separate beings. According to this theory the firm has an identity distinct from its owners or managers and is viewed as an economic and legal