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 includes stakeholders such as investors, creditors, regulators, and other parties interested in assessing the financial health and performance of the business. Financial accounting focuses on generating standardized financial statements, such as the income statement, balance sheet, and cash flow statement, which are prepared according to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).

These financial statements help external users make informed decisions regarding investing, lending, or evaluating the overall viability of the business. By presenting a clear picture of the company's financial standing, including assets, liabilities, revenues, and expenses, financial accounting fulfills its essential role in the economic environment.

The other options present important aspects of business operations but do not represent the primary aim of financial accounting. Internal decision-making support is typically the focus of managerial accounting. Tax preparation is a specific function that falls under compliance rather than the broader purpose of financial accounting. Informing employees about financial performance may occur, but it is not the main goal of financial reporting aimed at external stakeholders.