How to ensure accurate financial statements

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Ever wonder what an accountant in the pest management industry really does each month to produce accurate financial statements that give an accurate picture of how the business is performing? It all begins with recording transactions and ends with the closing of the books.

Here’s a look at the typical transactions pest control companies record during the month:

Revenue

• In your routing or operational software, you create work orders that get posted into customer invoices, which become accounts receivable (AR). The invoice records the type of service the customer receives, as well as the proper sales tax
  where required.
• When the customer pays, a payment is recorded that relieves the AR. These payments are batched together and deposited to the bank.
• The customer charges, payments and AR are brought over to your general ledger software, such as QuickBooks, in batches so that all revenue for the period is broken down by service code, division type and branch location for presentation on the profit-and-loss (P&L) statement.
• Sales tax is accumulated in your routing or operational software, and recorded as a liability in the general ledger software that will show up on your balance sheet and is relieved by paying the government.

Dan Gordon, CPA

Expenses

• Purchases are made. Materials are ordered from your distributor, delivery is verified, and the vendor issues an invoice. That invoice gets recorded in your accounts payable (AP) system. That invoice is either keyed into the computer or, as with many of our clients, a quick scan of the invoice is taken and through artificial intelligence (AI) the vendor is recognized, the expenses are properly coded, and the amount is properly recorded in the AP system.
• Vendor payments are made by recording checks or sending out electronic fund transfers to automated clearing houses (ACHs), that relieve the AP balance. Many of our clients use Bill.com that we administer, which gives them a dashboard where they can “click off” vendors to pay. This saves a tremendous amount of time and avoids check printing, stuffing, etc.
• Payroll is entered using a payroll service. This ensures all employees are coded properly by department, and payroll taxes are recorded and transferred to the general ledger.

Month end

• Reconciliations of the routing software balances are performed. This includes revenue, payments and AR to the general ledger program to ensure the integrity of revenue numbers, the customer payments and the AR.
• Reconciliations are performed for each cash account, loan account and credit card account. This process ensures the balances we believe to be correct coincide with what the bank, finance companies and credit card companies show as their balances.
• Month-end journal entries are posted to record interest, depreciation and other accruals.
• A trial balance is printed to ensure P&L and balance sheet accounts are correct and look reasonable. Where there are anomalies in balances, they are researched, and confirmed or corrected.
• A financial and operational report package is created once all the above work is completed. This package includes the P&L statement, balance sheet, statement of cash flows, and operational and other financial dashboards.

As your firm grows, there are several other aspects of management accounting that should be explored and implemented. But the firm that successfully employs the principles of management accounting — either internally or outsourced to a firm like ours — will accumulate much more in terms of wealth than the firm that operates by shooting from the hip.