What is the purpose of financial accounting?

The purpose of financial accounting is to provide financial information that is useful for making economic decisions. This area of accounting focuses on creating financial statements that summarize a company's past financial performance and current financial position. These statements, which include the income statement, balance sheet, and cash flow statement, are essential for both internal and external stakeholders, such as management, investors, creditors, and regulators. By presenting relevant and reliable financial data, financial accounting helps these stakeholders assess the company's profitability, solvency, and overall financial health, which guides their decision-making processes regarding investments, resource allocation, and financial planning.

While providing tax information and reporting on past performance are important aspects of financial accounting, the primary goal zones in on the usability of financial information for decision-making. Creating a detailed budget is more of a managerial accounting task, which focuses on internal decision-making and planning rather than external reporting.