The Financial Reporting System

It is the management’s responsibility for providing stewardship information to its external users.
It just means that their duty is to manage their resources efficiently and produce quality-
information in summarized reports, which are understandable and comparable, that can satisfy
the needs of the external users to evaluate the company’s performance. The external users are
classified as the primary recipient of these reports such as the shareholders, creditors, etc. The
duty of providing such information was completed through the Financial Reporting System.
However, due to the various needs of the external users, the financial reports were prepared
through the standard of a sophisticated users. Sophisticated users mean that the user has a basic
background knowledge about the conventions and principles used and applied in the financial
reports. It is assumed that, generally, the users are a sophisticated user as for the information to
be understandable and useful to them.

Financial Reporting System

Financial reporting is the final step in the overall accounting process. It starts with:
a) Capture the Transaction – Occurrence of transactions.
b) Record in Special Journal – Journalizing each of the transactions.
c) Post to Subsidiary Ledger – Transfer transactions from Journal to Subsidiary Ledger.
d) Post to General Ledger – Transactions from Journal and Subsidiary Ledger are
summarized and posted in General Ledger.
e) Prepare Unadjusted Trial Balance – Ending Balances of accounts in General Ledger, in the
end of the accounting period, are tested through Unadjusted Trial Balance for the equality
of debit and credit.
f) Make Adjusting Entries – Adjusting entries are done to look/correct errors and record
unrecognized transactions.
g) Journalize and post Adjusting Entries – Accounts affected by adjusting entries are updated
in General Ledger.
h) Prepare Adjusted Trial Balance – Updated accounts’ ending balances are tested again
through Trial Balance.
i) Prepare Financial Statement – Preparation of Financial Statements using Adjusted Trial
Balance.
j) Journalize and Post Closing Entries – Temporary Accounts are closed. General Ledger
updated.
k) Prepare Closing Trial Balance – Final Trial Balance using updated General Ledger.
Determination of accounts’ balances to be carried forward in the next accounting period.
Daily Procedure Periodic Procedure End of the Period Procedure

Prepare
Transactions Unadjusted
Trial
Balance

Journalize
Transaction
Journalize
Adjusting
Entries
Post to Post to
Subsidiary General
Ledger Ledger

Post to
General
Ledger
Prepare
Adjusted
Trial Balance

Prepare
Financial Shareholders
Statements

Post to Journalize
General Closing
Ledger Entries

Post-Closing
Trial Balance