Final answer:
Financial accounting information is historical and focuses on the past-oriented financial performance of a company. This allows investors who are not personally familiar with company managers to assess the firm's health and make investment decisions. Financial accounting is therefore crucial for providing transparency and information asymmetry between managers and outside investors.
Step-by-step explanation:
Of the given options regarding financial accounting information, the statement that is true is C) It focuses on the past-oriented financial performance of a company. Financial accounting involves the process of summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The information reported in financial statements is largely historical; it represents the financial position of a company at a given point in time or covers a defined period of the past. In contrast, option A is incorrect because financial accounting is not prepared based on a cost-benefit analysis, but rather by following accounting standards. Option B is also incorrect, since financial accounting is mainly utilized by external users like investors and creditors, whereas managers typically use managerial accounting for internal decisions. Option D is incorrect because financial accounting measures more than just cash transactions; it includes non-cash accounts like depreciation, accounts receivable, and payable.
As firms grow and their strategies are set to lead to profits, information becomes more widely available about the company's products, revenues, costs, and profits. This, in turn, encourages outside investors, who do not know the company managers personally, to invest capital. These investors rely on the financial accounting reports to understand the company's financial health and performance. Furthermore, the difference between accounting profit, which considers only explicit costs, and economic profit, which also considers implicit costs, is crucial for investors' understanding of the firm's potential for economic success.