Which of the following statements about the impact of the financial market is true in the context of different types of accounting?

• A. Financial accounting focuses on providing information to external users, and is directly influenced by changes in the financial market.
• B. Cost accounting is mainly used to prepare financial statements for shareholders.
• C. Tax accounting is designed to inform investors about market trends.
• D. Managerial accounting is primarily concerned with external reporting and is unaffected by financial market fluctuations.

Answer: (A)

Verified step by step guidance

1. Step 1: Begin by understanding the primary purpose of each type of accounting mentioned in the problem. Financial accounting focuses on providing information to external users, such as investors, creditors, and regulatory agencies. Cost accounting is used internally to manage costs and improve efficiency. Tax accounting deals with compliance with tax laws and regulations. Managerial accounting is used internally for decision-making and planning.
2. Step 2: Analyze the statement about financial accounting. Financial accounting is indeed influenced by changes in the financial market because external users rely on financial statements to make decisions based on market conditions. This aligns with the correct description provided in the problem.
3. Step 3: Evaluate the statement about cost accounting. Cost accounting is not primarily used to prepare financial statements for shareholders. Instead, it is used internally by management to control costs and improve operational efficiency.
4. Step 4: Assess the statement about tax accounting. Tax accounting is not designed to inform investors about market trends. Its primary purpose is to ensure compliance with tax laws and regulations, not to provide market-related information.
5. Step 5: Review the statement about managerial accounting. Managerial accounting is primarily concerned with internal reporting and decision-making, not external reporting. It is also affected by financial market fluctuations indirectly, as market conditions can influence business decisions and strategies.