What is the role of explanation and prediction in an accounting theory?

Question

What is the role of explanation and prediction in an accounting theory?

Answer 1

Usually, we prepare a budget to use as a sort of road map.  It tells us what to expect during the coming periods and how we have done during the past.  We might also use historical data to arrive at some of this insight.  When we look at things like costs and revenues we can see that we might expect to have X amount of sales in such a period and that we might have a relative amount of costs involved in obtaining those revenues.  Explanation would be used to indicate what went wrong with the model (or why we exceeded it.)  Prediction would be the act of predicting those costs and revenues during any particular period.  These skills can also be used to determine cash flows.