Which of the following statements is correct regarding financial accounting?

• A. Financial accounting is primarily concerned with internal decision-making and management planning.
• B. Financial accounting focuses on providing information to external users such as investors and creditors.
• C. Financial accounting does not require adherence to generally accepted accounting principles (GAAP).
• D. Financial accounting reports are typically prepared for specific departments within an organization.

Answer: (B)

Verified step by step guidance

1. Understand the purpose of financial accounting: Financial accounting is designed to provide information about a company's financial performance and position to external users, such as investors, creditors, and regulatory agencies.
2. Clarify the difference between financial accounting and managerial accounting: Financial accounting focuses on external reporting and must adhere to GAAP, while managerial accounting is concerned with internal decision-making and does not require adherence to GAAP.
3. Evaluate the statement about GAAP: Financial accounting requires adherence to generally accepted accounting principles (GAAP) to ensure consistency, reliability, and comparability of financial reports.
4. Analyze the statement about internal decision-making: Financial accounting is not primarily concerned with internal decision-making; this is the domain of managerial accounting.
5. Review the statement about departmental reports: Financial accounting reports are not typically prepared for specific departments within an organization; they are intended for external users and provide a comprehensive view of the organization's financial health.