Which one of the following statements correctly applies to financial accounting?

• A. Financial accounting does not follow any standardized rules or principles.
• B. Financial accounting reports are typically confidential and used only by management.
• C. Financial accounting is primarily concerned with budgeting and internal decision-making.
• D. Financial accounting focuses on providing information to external users such as investors and creditors.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of financial accounting: Financial accounting is designed to provide standardized and reliable information about a company's financial performance and position to external users such as investors, creditors, and regulatory agencies.
2. Recognize the standardized rules: Financial accounting follows established principles and standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), to ensure consistency and comparability of financial reports.
3. Differentiate financial accounting from managerial accounting: Financial accounting focuses on external reporting, while managerial accounting is concerned with internal decision-making, budgeting, and operational planning.
4. Identify the confidentiality aspect: Financial accounting reports are publicly available and not confidential, as they are intended for external stakeholders, unlike managerial accounting reports which are used internally by management.
5. Conclude the correct statement: Based on the above clarifications, the correct statement is that financial accounting focuses on providing information to external users such as investors and creditors.