QQuestionAccounting
QuestionAccounting
The primary objective of financial accounting is to:
Inform management about what, when, and how much products to produce.
Monitor consumer needs, tastes, and price concerns.
Serve the decision-making needs of Internal Revenue Service (IRS) for tax collection.
Provide accounting information that serves external users in making decisions such as investment and lending.
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Answer
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Step 1: Identify the primary objective of financial accounting from the options provided.
The primary objective of financial accounting is to provide accounting information that serves external users in making decisions such as investment and lending. Financial accounting is primarily focused on creating financial reports for users outside the organization, such as investors, creditors, and regulatory authorities. These reports, including income statements, balance sheets, and cash flow statements, are used to assess the financial health and performance of a company.
Step 2: Explain the reasoning behind the primary objective.
Financial accounting is essential for external users because it provides them with the necessary information to make informed decisions about their financial relationships with the company. For instance, investors use financial reports to evaluate the company's profitability and financial position before deciding to invest. Creditors, on the other hand, use these reports to assess the company's creditworthiness and ability to repay loans. Regulatory authorities also rely on financial reports to ensure compliance with financial regulations and tax laws.
Final Answer
The primary objective of financial accounting is to provide accounting information that serves external users in making decisions such as investment and lending. This objective ensures that users outside the organization have access to accurate, reliable, and relevant financial information to make informed decisions about their financial relationships with the company.
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