What is the primary purpose of financial accounting?

The primary purpose of financial accounting is to provide information about a company's financial performance and position to external users. This includes stakeholders such as investors, creditors, regulators, and other parties interested in the financial status of the organization. Financial accounting focuses on creating standardized financial statements, such as the balance sheet, income statement, and cash flow statement, which offer a clear picture of the company's profitability, liquidity, and overall financial health.

This information allows external users to make informed decisions regarding their investments, credit, and regulatory compliance. The emphasis is on accuracy, transparency, and adherence to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), which help ensure that financial statements are reliable and comparable across different entities.

In contrast, preparing tax returns is more specific to tax accounting and does not encompass the broader objectives of financial accounting. Assisting management in decision-making pertains more to managerial accounting, focusing on internal processes rather than external reporting. Recording all internal financial transactions relates to bookkeeping, which is fundamental but not the overarching aim of financial accounting.