Month-end close Updated November 2026

Cutoff

Cutoff is the rule that a transaction is recorded in the period in which it actually occurred, not when the paperwork arrives. At month-end, check the last shipments, the last receipts of goods, invoices dated around the period end and deposits made in the final days to make sure each sits in the right month.

Syntax

Test: last 5 shipments and first 5 of next month -> correct period? Last 5 goods receipts and first 5 of next month -> correct period?

Part	What it is
`Sales cutoff`	Revenue when control passes (shipment or delivery), not when invoiced
`Purchase cutoff`	Expense or inventory when goods or services are received, not when the bill is dated
`Cash cutoff`	Deposits and payments by the date the cash moved; relates to deposits in transit

Examples

Goods shipped on the 31st, invoice dated the 2nd for 4,000

Result: Revenue belongs in the old month: Dr Accounts Receivable 4,000 / Cr Sales 4,000 dated the 31st (or accrue unbilled revenue).

Supplier invoice dated the 28th for 900 of services delivered on the 5th of next month

Result: Expense belongs in the new month; record it as a prepayment or hold it until next month, despite the invoice date.

Inventory received on the 30th, invoice arrives the 10th for 2,500

Result: Accrue at month-end: Dr Inventory 2,500 / Cr Accrued Liabilities (goods received not invoiced) 2,500.

Common mistakes

Using the invoice date as the accounting date: the delivery date governs.
Only testing one side: test both before and after the period end so you catch items pushed in as well as items pushed out.
Treating cutoff as a year-end task only: a wrong month-end cutoff misstates monthly results and margins.

Practice Cutoff

These drills check your answer on live data, free, no account needed.

End of month rushClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Service business closeClassify every line, enter both adjusted balances, then choose the journal entry the company must record for each item that affects its books.

Questions

What is a cutoff error?

A transaction recorded in the wrong period, such as January sales booked in December. It overstates one period and understates the next.

How does cutoff relate to the bank reconciliation?

A deposit recorded on the 31st but credited by the bank on the 1st is a deposit in transit; good cash cutoff is what makes the timing differences real rather than errors.

Accruals at month-endHow to accrue expenses incurred but not yet billed and revenue earned but not yet invoiced at month-end, with worked entries and the reversal next month.
Deposits in transitA deposit in transit is cash recorded in the books that the bank has not yet credited. Add it to the bank statement balance and make no journal entry.
Month-end close checklistA month-end close checklist in sequence: cutoff, bank and card reconciliations, AR and AP, accruals and prepaids, fixed assets, balance sheet recs, lock.
Accounts payable reconciliationReconcile accounts payable in two directions: the AP aging to the general ledger control account, and each major vendor statement to the ledger.