What is the purpose of financial accounting in the management cycle?

Financial accounting primarily serves the needs of external users, such as investors, creditors, and regulatory agencies. This branch of accounting provides a standardized framework for reporting financial information that is useful for these stakeholders in making informed decisions regarding the entity's financial performance and position. External users rely on accurate financial statements, which are generated through financial accounting, to evaluate the viability and stability of an organization, assess risks, and make comparisons within the industry.

In the context of the management cycle, financial accounting focuses on the communication of financial results to those outside the organization, providing transparency and accountability. This is distinct from managerial or internal accounting, which is oriented towards assisting internal management in planning, controlling, and facilitating decision-making processes. By presenting financial data in a clear and systematic manner, financial accounting ensures that external parties have access to the information they need to understand the financial health and operations of the organization.