sales-cut off testing

1. Because the sale Dr Trade receivables/Cr Revenue must be recorded in the same accounting period as when the goods were despatched from inventory.

2. This appears to be a cut-off error – so has to be investigated before it can be corrected. Suppose the date of despatch can be corroborated to be correct (e.g. through a tracking number with the post office or courier). There are two possibilities:

The date of sale per the invoice is simply wrong – so the sale was not make during the year – it must therefore be derecognised – Dr Revenue/Cr Trade receivables/Cash.

The customer asked, when buying the goods, that they be held and despatched later. In this case, the goods should have been identified and set aside from the inventory to be counted at the reporting date. (This could happen in retail with large items of furniture or white goods, for example.) The auditor would need to check the stockcount documentation (these goods should have been recorded precisely because of the need for cut-off testing checks, even though they are not included in the count quantities). If they were not set aside but incorrectly included in the y/e count, it is the inventory valuation that needs to be corrected Dr Cost of sales/Cr Inventory (asset)