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.

Examples of Cutoff Dates

Here are three examples of cutoff dates in accounting:

Year-end financial reporting cutoff (December 31). A company with a December 31 fiscal year-end must ensure that all revenue and expenses incurred up to that date are recorded in the correct period. If an invoice for a sale is issued on December 30, it should be included in that year’s financial statements. However, if a sale occurs on January 1, it will be recorded in the next fiscal year.
Monthly closing cutoff (e.g., March 31 for a March close). A business that prepares monthly financial statements might set March 31 as the cutoff date for all March transactions. Any expenses, such as utility bills or supplier invoices, received after March 31 but related to March must be accrued. Any new transactions occurring on April 1 will be recorded in April’s financial records.
Payroll processing cutoff (e.g., 15th and 30th of the month). A company that processes payroll twice a month may set cutoff dates on the 15th and 30th of each month. If an employee submits overtime hours on March 14, they will be included in the March 15 payroll. However, if overtime hours are reported on March 16, they will be processed in the next payroll cycle on March 30.

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.