Which of the following is a characteristic of financial accounting?

• A. It is not governed by generally accepted accounting principles (GAAP).
• B. It emphasizes future projections rather than historical data.
• C. It focuses on providing information to external users such as investors and creditors.
• D. It is primarily concerned with budgeting and internal decision-making.

Answer: (C)

Verified step by step guidance

1. Understand the purpose of financial accounting: Financial accounting is primarily concerned with providing information to external users, such as investors, creditors, and regulatory agencies, to help them make informed decisions.
2. Recognize the governing principles: Financial accounting is governed by generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), ensuring consistency and comparability of financial statements.
3. Distinguish between historical data and future projections: Financial accounting emphasizes historical data, recording and reporting past transactions, rather than focusing on future projections or forecasts.
4. Identify the audience: Financial accounting focuses on external users, unlike managerial accounting, which is designed for internal users such as management for budgeting and decision-making purposes.
5. Clarify the scope: Financial accounting is not primarily concerned with internal processes like budgeting or operational decision-making; instead, it aims to present a clear and accurate picture of an organization's financial position and performance.