The accounting glossary
What is cut-off in accounting?
Cut-off is the period-end work that places revenue and expenses in the period to which they belong under the applicable accounting policy. The invoice or payment date is not always the date the revenue is earned or the expense incurred. Cut-off can concern a monthly, quarterly or year-end close.
The short answer
Cut-off examines performance, delivery and consumption around the reporting date. Common adjustments include deferred revenue, accrued income, prepaid expenses and accrued expenses. A schedule connects the transaction, service period, accounting amount and proposed adjustment. The reviewer checks the supporting facts before approving the period assignment; a spreadsheet formula alone does not establish the recognition policy.
Four common period-end adjustments
| Concept | Timing illustrated | French term / account |
|---|---|---|
| Deferred revenue | Revenue billed before performance | PCA / 487 |
| Accrued income | Revenue earned before billing | FAE / 418 |
| Prepaid expenses | Expense paid or booked before consumption | CCA / 486 |
| Accrued expenses | Expense incurred before the bill arrives | FNP / 408 |
Scroll the table if needed.
Two fictional expenses at December 31
Assume January 2027 rent of $3,000 is billed and paid on December 20, 2026. If the applicable policy allocates that rent to January, the December close includes a $3,000 prepaid expense. The payment date does not make the rent a December expense.
Assume a $1,150 electricity bill for December service arrives on January 12, 2027. The December service should be examined for a December accrual. The next month’s bill can provide evidence for an earlier-period expense. Neither example determines tax deductibility.
Use service and delivery evidence
A contract may describe a service period; delivery documents may identify when goods were transferred. The invoice register then helps locate transactions, but it does not answer every recognition question. Record the document relied on and the conclusion drawn from it.
Test the population around period-end in both directions: items billed early for later work and later invoices for work already performed. Check credit notes, cancellations and invoices missing a service period. Use consistent day conventions when a time allocation is appropriate, and explain changes in method rather than silently changing the formula.
The same principle applies at different close frequencies
A month-end cut-off and a year-end cut-off have the same timing question but different reporting dates. A repeatable schedule helps the reviewer explain reversals, additions and the closing amount. Keep the comparative and the opening adjustment linked to the current calculation.
Audit cut-off testing is an audit procedure examining whether transactions were recorded in the proper period. An accounting close schedule and an audit procedure can use similar evidence, but neither should be presented as automatically accomplishing the other.
Keep the adjustment visible in the review file
Close Review includes dedicated accrued- and deferred-revenue work from the invoice register. Proposed adjusting entries belong in the workpaper for professional review and posting by the team. The broader checklist can also organize prepaid and accrued expenses as accounting tasks, without implying a dedicated automated calculation for every checklist item.
Common questions
Is cut-off only a year-end task?
No. It applies at each reporting date, including monthly and quarterly closes, according to the entity’s reporting process.
Is the invoice date enough?
Not always. Examine service, delivery and contract evidence to determine the relevant period under the applicable policy.
Does a cut-off schedule determine tax treatment?
No. Accounting timing and tax treatment are distinct questions. Examine the tax rules separately when preparing the return.
Sources for further reading
Dated source checks do not replace review by the professional responsible for your engagement.
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