Cut-off is the discipline of recording every transaction in the accounting period in which it happened, no earlier and no later. A cut-off error moves revenue, costs or stock between periods, so it is one of the first things auditors test around the year end.
What is cut-off?
Every period has a boundary. Goods delivered on 30 June belong to June, even if the invoice goes out on 2 July. A service received on 29 June is a June cost, even if the bill arrives in July. Cut-off is the set of checks that puts each transaction on the right side of that boundary.
It is the practical side of accrual accounting. Errors usually run one way: income pulled into a period to meet a target, or costs pushed out of it. Either way, two periods are wrong at once, the one that gained and the one that lost.
What should you check at the period end?
| Area | What to check |
|---|---|
| Sales | Goods delivered and services performed by the period end are invoiced or accrued; nothing delivered after it is in the period |
| Purchases | Goods and services received by the period end are booked, as a bill or as an accrual for goods received not yet invoiced |
| Inventory | The stock count, the last delivery notes and the last goods received notes all use the same boundary |
| Advance payments | Cash received before delivery is held as deferred revenue, not revenue |
| Payroll | Salaries, allowances and overtime for the period are in the period, even if paid later |
| Intercompany | Both group companies record a transaction in the same period, so the balances agree |
After the checks comes the lock. Once a month is signed off, nobody should post into it without reopening it on purpose and recording why. Otherwise a corrected June can quietly change again in August.
What does a cut-off error look like?
Why does cut-off matter for finance teams in the GCC?
Monthly reports, bank covenant tests, bonus calculations and group consolidation all rely on each month standing on its own. Groups with several companies also need the same boundary on both sides of every intercompany transaction, or the balances will not eliminate. Cut-off is a standing step in any month-end close checklist, and the same discipline makes the VAT return easier to prepare.
Questions people ask
What is a cut-off test in an audit?
The auditor picks transactions recorded just before and just after the period end and checks the delivery notes, receiving records and invoices to confirm each one is in the right period.
What is the difference between a hard close and a soft close?
A hard close locks the period after full cut-off procedures, usually at quarter or year end. A soft close produces monthly figures with lighter procedures and more estimates. Both need a clear cut-off date.
How do you correct a cut-off error found after the month is closed?
Book the correction in the open period with a clear reference, or reopen the closed month with a recorded reason if the error is material. Do not edit a closed month silently.