Cutoff date definition

What is the Cutoff Date in Accounting?

In accounting, the cutoff date is the point in time that delineates when additional business transactions are to be recorded in the following reporting period . For example, January 31 is the cutoff date for all transactions that will be recorded in the month of January. All transactions occurring after that date will be recorded in February or later months. The concept is especially applicable when conducting an inventory count , where the receiving and shipping functions may be closed down at the end of the cutoff date to ensure that inventory transactions are properly recorded.

Cutoff Date Best Practices

Improper observance of the cutoff date can lead to incorrect or fraudulent financial statement results, so it is essential to observe several cutoff best practices. They are as follows:

Mandate a cutoff time . Create and enforce an accounting policy that states exactly when the cutoff will be triggered at the end of each reporting period. This is usually as of the close of business on the final working day of the month.
Conduct an audit . If you have an internal audit team, have them conduct an occasional examination of end-of-period shipping documents to ensure that sales are being recorded in the correct period.