Garden Depot is a retailer that is preparing its financial statements for external users. Which type of accounting is primarily being used in this process?

• A. Financial accounting
• B. Cost accounting
• C. Tax accounting
• D. Managerial accounting

Answer: (A)

Verified step by step guidance

1. Understand the purpose of the financial statements: Financial accounting is primarily concerned with preparing financial statements for external users, such as investors, creditors, and regulatory agencies. This distinguishes it from other types of accounting.
2. Review the definitions of the accounting types: Financial accounting focuses on external reporting, cost accounting deals with cost analysis for internal decision-making, tax accounting focuses on compliance with tax laws, and managerial accounting supports internal management decisions.
3. Identify the audience for the financial statements: Since the financial statements are being prepared for external users, this aligns with the purpose of financial accounting.
4. Eliminate other options: Cost accounting, tax accounting, and managerial accounting are primarily used for internal purposes or compliance, not for external reporting.
5. Conclude that the correct type of accounting being used in this process is financial accounting, as it matches the purpose of preparing financial statements for external users.