How to Maintain an Accurate Balance Sheet with Slack: A Proactive Approach to Financial Statement Integrity

If a Balance Sheet Account is Negative, Get Notified in Slack or Workplace by Facebook!

 

Analyzing the balance sheet is one of the most critical responsibilities of a proper month-end close.  Failing to incorporate this particular step into your accounting workflow could result in producing grossly inaccurate financial statements.  The Profit and Loss Report, or Income Statement, should not even earn a glimpse of attention until you have verified the validity of your assets, liabilities and equity accounts.  Although all of your firm’s transactions may be in a reconciled state, your financial statements may be invalid if you ignore its most important component – the balance sheet.

 

There are a plethora of triggers that can warrant deeper analysis into a particular balance sheet account:

 

ASSETS

  • Cash on Hand – Does the cash balance match your actual cash on hand as of the report date?  If not, drilling down into this account could identify potentially erroneous entries.
  • Accounts Receivable – If the balance here appears to be too high or low, you may need to dig deeper in order to determine if all of your customer activity was recorded correctly.  Did you accidentally record a payment from a customer as a deposit directly to an income account instead of a payment to close out their invoice(s)?  If so, your revenue will be overstated (as well as  Accounts Receivable) as a result.  Alternatively, perhaps you recorded a payment from a customer that differs from their invoice, in which case an adjustment to the actual invoice is necessary.  
  • Undeposited Funds – Because this particular account is essentially designed to serve as a clearing account, the debits and credits should eventually net out to zero.  If you notice a balance in your Undeposited Funds account at the end of the month, it is pertinent to verify all of the uncleared transactions to ensure that no erroneous payments or journals were recorded, and make adjustments where necessary.
  • Uncategorized Asset – Whenever this account carries an active balance, drill down and reclassify each transaction accordingly but be mindful of potentially compromising historical financials.
  • Fixed Assets – Analyzing comparative balance sheet reports can help you identify transactions that may have accidentally found their way into a fixed asset account.  With the exception of accumulated depreciation/amortization, original fixed asset balances should remain static until they are disposed of or expire.  If you recognize a comparative increase or decrease to any of your fixed asset accounts, you should drill down and reclassify any erroneous entries that were recorded.  You may find that a customer payment or vendor expense or bill payment snuck its way into this account.
  • Inactive or Closed Bank Accounts – If you notice an inactive or old bank account on the balance sheet, it is highly likely that the account was never properly closed, or a transaction was erroneously credited or debited from this account.  

 

LIABILITIES

 

  • Accounts Payable – Similar to Accounts Receivable, AP should be verified to ensure that no erroneous expenses or checks were recorded directly to an expense account instead of as a bill payment.  Expenses will be overstated as a result.  
  • Loans and Lines of Credit – In most cases, loans and lines of credit carry interest, which is normally incorporated into the monthly loan or line of credit payment.  A common mistake most bookkeepers make is posting the entire payment directly to the liability account.  Ultimately, that particular liability account will appear as a negative (especially when it is close to its maturity date) on your balance sheet because it was not being adjusted, or reduced, by the interest component of the loan.  
  • Payroll Taxes – Most payroll service providers will handle the payroll wages and tax liability entries for you, however there are several events that can compromise the validity of your payroll liability balances.  Late payroll tax payments can carry penalties and interest, for example.  For companies with more advanced payroll requirements, such as benefits administration, it is common for a medical insurance payable accounts to be negative.  The employer will normally pay the monthly premium in advance and recoup the employee deductions in the following month.  Administrative fees could also factor in as elements to a benefits payment, so it is important to closely monitor all payroll-related liability accounts for accuracy.
  • Sales Tax – Using a quarterly filer as an example, it is important to check that your liability balance at the end of the quarter matches your actual quarterly filing and payment to the state.  If you notice a discrepancy, it may take a while to identify the root cause, especially with a high-volume company.  It is important to stay up to date with sales tax liability accounts in order to properly support a sales tax audit.  

 

EQUITY

  • Opening Balance Equity – This account can sneak up on you out of nowhere if you recently opened up or connected a new bank or credit card account to your accounting system.  In the event that you are managing inventory, specifying an opening quantity for a new SKU can also generate an offset to Opening Balance Equity.  If you are not currently in your company’s incubation year, there is never a plausible explanation behind carrying a balance in this account.
  • Owner/Partner Equity – It is highly recommended to drill down into owner’s draws/distributions and contribution accounts to ensure that there are not any valid business expenses that were erroneously posted to the account.  For partnerships, it is also important to eyeball each partner’s equity account to verify that they are aligned with their stake in the company as a percentage. For example, if Partner A and Partner B each own 50%, then, in most cases, their equity account balances should be identical.

 

One of the clearest indicators of a faulty balance sheet is the presence of a negative asset or liability account.  Although there are some accounts that are designed to be negative (i.e. accumulated depreciation, accumulated amortization, owner/partner draws and distributions), negative balance sheet accounts need to be addressed and rectified before closing out the period.  A negative asset or liability balance normally suggests that one or more transactions were erroneously posted or if any of the scenarios mentioned in the above examples were present.   

 

Pinger helps to catch these errors quickly by monitoring your balance sheet accounts on a daily basis and notifying you when negative balances exist.  This feature helps business owners, accountants and bookkeepers maintain the integrity of their financial statements at all times as opposed to when the financial period is reconciled and closed.  Staying on top of your balance sheet activity also reduces the amount of cleanup time required during the month-end close. With Pinger’s negative balance ping activated, your back office is capable of proactively maintaining a healthy balance sheet with the ability to deliver accurate month-end and pro-forma financials.

 

Pinger can send notifications from your accounting system (i.e. Quickbooks Online, Xero, Sage, Netsuite) to your preferred collaboration software, such as Slack, Workplace by Facebook, email and SMS.  Simply log into your Pinger account, activate the Negative Balance ping, choose your accounting system and Slack channel or Workplace by Facebook group, and let the automation work its magic!

 

To learn more about Pinger, please visit www.ifpinger.ai.