Pilot’s Standard Bookkeeping Policies

Date Posted: August 24, 2020
Applicable to: Customers with a signed order form for Bookkeeping Services.
Subject to the Pilot Subscription Agreement.

Roles and Responsibilities
In the preparation of books for its customers, Pilot.com, Inc. (“Pilot”) is solely acting as a bookkeeper. The financial statements that Pilot prepares for the applicable customer (“Company”) is subject to the terms and conditions of Pilot’s agreement with Company as set forth in the Order Form with Company and the Pilot Subscription Agreement (available at https://pilot.com/terms/). Pilot does not provide any audit, assurance or public accounting services, including certifications of GAAP compliance or assessments of internal controls. AICPA guidelines require that audits are performed by a firm that is independent from the bookkeeping. Accordingly, current and prospective customers should be advised to seek out an independent audit firm for any audit and assurance services.

Accuracy of information provided to Pilot, internal controls and any representations made are the sole responsibility of Company’s management (“management”). Pilot does not take any responsibility to audit, detect or remedy potential fraud or errors by management.

Description & Implementation
Pilot’s bookkeeping operations follow a standardized checklist and processes across our more than 1,000 clients. The processes are designed by our Head of Finance Operations and are broadly based on generally accepted accounting principles (GAAP), where applicable and feasible, as described below. However, financial statements prepared by Pilot’s bookkeeping operations and certain related processes may vary from Pilot’s standard processes if so instructed by management for Company-specific situations.

Pilot’s standard accounting policies and processes are described below. Pilot does not make any guarantees that there are no deviations made in error or as instructed by management. Typically, an independent audit can help with this (audit procedures include examining, on a test basis, evidence regarding the amounts and disclosures in Company financial statements). Pilot provides bookkeeping services to a number of customers that are also audited.

Entities & Consolidation
Unless otherwise indicated in the “Scope of Work” section of the Order Form, Pilot only performs bookkeeping for the customer/entity that signs the Order Form (and not related entities). Consolidation is performed if management (i) informs Pilot about related entities (including subsidiaries and variable interest entities) and (ii) purchases bookkeeping services for consolidated financial statements. In such a case, intercompany balances and transactions are eliminated.

Use of Estimates
Preparation of consolidated financial statements may require management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, management should evaluate such estimates, including those related to the bad debt allowance, sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities, among others. Management should base their estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Financial information about segments and geographic areas
Financials are reported as a single operating segment unless otherwise instructed by management and included in the “Scope of Work” section of the Order Form.

Foreign currency transactions
If applicable, the assets and liabilities of Company’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date or as instructed by management. Revenue and expense amounts are translated at the average exchange rate for the period or as instructed by management. Foreign currency translation gains and losses are generally recorded in other comprehensive income (loss).

Income Statement

Revenue Recognition
Revenue is recognized when management believes there is persuasive evidence that an arrangement exists between Company and its customer, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured. If applicable, deferred revenue is recognized over the service period. Pilot relies on management to provide data with respect to revenue based on pre-agreed workflows.

Cost of Goods Sold / Cost of Revenue
Costs are recognized when management believes and communicates to Pilot that there is persuasive evidence that an arrangement exists between Company and its customer, delivery has occurred or services have been rendered, the fee for the arrangement is fixed or determinable and collectability is reasonably assured.

Operating Expenses
Expenses are generally recognized on an accrual basis based on the service term. Prepayments are record to a prepaid expense account. Expense accruals are recorded to an accrued expenses account. Pilot relies on management to provide data on service periods and confirm categorizations.

Allocations are performed if management (i) requests that Pilot perform allocations of certain expenses, and (ii) provides instructions on methodology and data (e.g. headcount by department), and (iii) purchases the additional services as reflected in Company’s “Scope of Work” section of the related Order Form.

Depreciation
Depreciation is generally calculated by straight-line method based on useful lives of the assets as informed by management or IRS/industry standards.

Income Tax
Income tax is booked if management (i) requests that Pilot include an income tax accrual and (ii) provides the accrual amount to be booked.

In providing an accrual, management should consider taxes due in the period plus deferred taxes related primarily to differences between the basis of receivables, property and equipment, intangible assets, and accrued expenses for financial and income tax reporting.

Balance Sheet

Cash
Funds held in Company’s banking account based on management’s records, statements or communication.

Cash Equivalents
Funds held in short-term, highly liquid investment with original maturities of three months or less at the time of purchase to be cash equivalents in Company’s banking account based on management’s records, statements or communication.

Accounts Receivable (A/R)
A/R consists of uncollateralized customer obligations due under normal trade terms.

Accounts Payable (A/P)
A/P consists of uncollateralized vendor payment obligations due under normal trade terms.

Inventory
Inventory generally consists of physical assets that are held-for-sale as identified by management including any third-party inventory management systems or communicated by management. Pilot relies on management to verify its physical inventory count and any required write-downs.

Fixed Assets
Property and equipment over the fixed asset threshold are recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense.

Typical Monthly Close Process

Pilot’s monthly close processes is focused on: reconciling balance sheet accounts to the appropriate sources of truth, classifying bank and credit card transactions to the proper account, and recording journal entries to capture any additional income or accruals, depreciation and amortization of related assets. Additionally, Pilot analyzes the variability in account balances each month and identifies large variances for management to determine whether financials are accurate and complete.

Reconcile

  • Bank and credit card accounts
  • Money in Transit and other clearing accounts
  • Other balance sheet accounts
  • Payroll entries against payroll system

Categorize

  • Bank and credit card transactions
  • Transactions synced from other institutions

Record

  • Prepaid expenses
  • Employee reimbursements and other employee benefits
  • Fixed Asset journal entries
  • Capitalized expenses over the fixed asset threshold
  • Depreciated expenses
  • Revenue

Assess

  • Open Accounts Payable balances
  • Open Accounts Receivable balances

Analyze

  • Variance in P&L and Balance Sheet (and identify any areas where management input is required)
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