If a prime contractor subcontracts some of the work, which type of accounting is primarily used to track the costs associated with both the contractor's and subcontractor's activities?

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

Answer: (D)

Verified step by step guidance

1. Understand the context of the problem: The question is asking about the type of accounting used to track costs for both the contractor and subcontractor activities. This involves analyzing costs incurred during a project.
2. Review the definitions of the accounting types mentioned: Financial accounting focuses on preparing financial statements for external stakeholders, tax accounting deals with compliance with tax laws, managerial accounting supports internal decision-making, and cost accounting tracks and analyzes costs associated with specific activities or projects.
3. Identify the key requirement: Since the problem involves tracking costs for both the contractor and subcontractor activities, the focus is on detailed cost analysis rather than external reporting or tax compliance.
4. Relate the requirement to the correct accounting type: Cost accounting is specifically designed to track, allocate, and analyze costs associated with projects, making it the most relevant type for this scenario.
5. Conclude that cost accounting is the correct answer because it provides the tools and methods to monitor and manage costs for both the contractor and subcontractor activities effectively.