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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Which of the following best describes the primary function of financial accounting as a discipline?

The primary function of financial accounting is to record, classify and summarise financial transactions and communicate the results to users. Forecasting, pricing and fraud detection are secondary or belong to other disciplines such as cost accounting and auditing, so they do not define accounting.

  1. ARecording, classifying and summarising financial transactions and communicating the results to usersCorrect
  2. BForecasting future cash flows of the business for the next five years
  3. CFixing the selling price of each product on the basis of cost
  4. DAuditing the books of accounts to detect frauds

Explanation

Accounting is the art of recording, classifying and summarising financial transactions and interpreting and communicating the results. Forecasting, pricing and fraud detection are not its defining function. Pricing is a cost accounting application and fraud detection belongs to auditing.

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