Most credit cards will charge you an annual fee. Which type of accounting would typically record and report such fees for a business?

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

Answer: (C)

Verified step by step guidance

1. Understand the nature of the transaction: An annual fee charged by a credit card company is a cost incurred by the business for using the credit card service. This fee is typically recorded as an expense in the business's financial records.
2. Identify the type of accounting that deals with recording and reporting such expenses: Financial accounting is responsible for preparing financial statements that reflect the business's financial position, including expenses like annual fees.
3. Differentiate between the types of accounting mentioned: Cost accounting focuses on analyzing costs related to production, managerial accounting aids in internal decision-making, and tax accounting deals with tax-related matters. Financial accounting, however, is concerned with external reporting of financial transactions, including expenses like annual fees.
4. Recognize the purpose of financial accounting: Financial accounting ensures that all expenses, revenues, assets, and liabilities are accurately recorded and reported in compliance with accounting standards, making it the correct type of accounting for recording annual fees.
5. Conclude that the correct answer is Financial accounting, as it is the branch of accounting responsible for recording and reporting such fees in the financial statements of the business.