What is the primary purpose of financial accounting?

The primary purpose of financial accounting is to prepare financial reports that are useful to both internal and external parties. This includes providing stakeholders, such as investors, creditors, and management, with essential information about a company's financial position, performance, and cash flow. These reports, like the balance sheet, income statement, and cash flow statement, help users make informed decisions regarding the company’s financial health.

While regulation by government agencies and compliance are important aspects of financial accounting, they serve as supportive functions rather than the core objective. Financial accounting focuses on the accurate representation of financial data to all interested parties, not just those involved in compliance. Furthermore, while internal management uses these reports for decision-making, financial accounting isn't exclusively designed for just internal purposes; it incorporates the needs of external stakeholders as well. Thus, the comprehensive nature of financial accounting aims to serve a broad audience, which is encapsulated in the choice indicating the preparation of financial reports for both internal and external uses.