Which of the following types of accounting measures a company's ability to protect its long-term creditors?

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

Answer: (B)

Verified step by step guidance

1. Understand the purpose of each type of accounting mentioned in the problem: Tax accounting focuses on compliance with tax laws, Managerial accounting aids internal decision-making, Cost accounting analyzes costs for efficiency, and Financial accounting provides information to external stakeholders like creditors and investors.
2. Recognize that long-term creditors are external stakeholders who are interested in the company's financial health and ability to meet obligations over time.
3. Identify that Financial accounting is designed to measure and report a company's financial position, performance, and cash flows, which are critical for assessing its ability to protect long-term creditors.
4. Note that financial statements such as the balance sheet, income statement, and cash flow statement are key outputs of Financial accounting and are used by creditors to evaluate the company's solvency and liquidity.
5. Conclude that Financial accounting is the correct type of accounting for measuring a company's ability to protect its long-term creditors, as it provides the necessary external financial information.