What is the primary purpose of financial accounting?

The primary purpose of financial accounting is to provide financial information about a business to external users for decision-making purposes. This type of accounting focuses on creating standardized financial statements, such as the balance sheet, income statement, and cash flow statement, which are essential for stakeholders outside of the company, such as investors, creditors, and regulatory agencies. These stakeholders rely on accurate and timely financial information to assess the company's performance, make investment decisions, evaluate creditworthiness, and understand the company's financial position in the market.

In contrast to internal accounting functions, financial accounting emphasizes transparency and adherence to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), which ensure that the information is presented consistently and can be understood by outsiders. This is crucial for maintaining trust and accountability in the financial reporting process.