What is the primary purpose of financial accounting?
A)Determine the amount of tax liability owed to the government.
B)Communicate business transactions to internal management.
C)Measure business transactions and communicate those measures to external users to make decisions.
D)Measure the profitability of the company in order to assist employees with making decisions.

Question

Quizplus · Accepted Answer

The primary purpose of financial accounting is to measure business transactions and communicate those measures to external users such as investors, creditors, and regulators to make decisions. Financial statements such as balance sheets, income statements, and cash flow statements are prepared to provide information to external users. Option A is incorrect since tax liability owed to the government is a legal requirement and not the primary purpose of financial accounting. Option B is incorrect since communication of business transactions to internal management is the role of managerial accounting, not financial accounting. Option D is incorrect since financial accounting is not primarily concerned with assisting employees; it is concerned with communicating financial information to external parties.

What Is the Primary Purpose of Financial Accounting