What is the main purpose of financial accounting?

The main purpose of financial accounting is to document transactions and create reports for investors and external agencies. This aspect of accounting focuses on providing a clear and structured presentation of a company's financial health, performance, and cash flows through the preparation of financial statements, such as the income statement, balance sheet, and cash flow statement.

These reports are crucial for stakeholders, including current and potential investors, creditors, regulators, and analysts, as they rely on accurate financial information to make informed decisions regarding the company. Financial accounting adheres to established standards and guidelines, ensuring consistency and comparability of financial information across different organizations.

In contrast, maintaining employee records, evaluating employee performance, and developing marketing plans pertain to operational and strategic aspects of a business that do not fall under the primary focus of financial accounting. While these functions are essential for overall business success, they do not directly contribute to the goal of conveying financial information to external parties.