What is the main focus of financial accounting?

Financial accounting primarily concentrates on providing information that is useful for external stakeholders. This includes investors, creditors, regulators, and other parties who need to assess a company's financial position. The purpose is to prepare financial statements such as the balance sheet, income statement, and cash flow statement, which present a company's financial performance and position over a specific period.

External reporting adheres to established accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), ensuring consistency and comparability across organizations. Stakeholders rely on these reports to make informed decisions, such as investing in the company or extending credit.

In contrast, other aspects like internal reporting for management, cost management within departments, and strategic planning are typically categorized under managerial accounting. While these elements also play crucial roles in the overall accounting function, they are intended for internal use rather than external communication. Thus, the primary focus of financial accounting is aligned with the needs of external stakeholders for reliable and standardized information.