The best place to start purchases cut-off test is from goods received notes issued immediately before and after the year- end. Generally, the test should cover a sample of items during the period of two weeks before to two weeks after the year -end.
At the stock take, I should have recorded the last goods received note number issued before the year-end. This will assist in confirming that all items purchased before the year-end are included in the stock and the liability disclosed. I will select a sample of goods received notes issued before the year- end, and follow through to the purchase invoice. For these goods I will check that:
- Either the purchase invoice has been posted to the purchase ledger before the year end or a purchase accrual has been made;
If there are book stock records, I will check that the goods have been included in the records before the year -end.
There will be a purchases cut off error where either:
- The purchase invoice has not been posted to the purchase ledger before the year end and there is no purchase accrual; or
- The purchase invoice has been posted to the purchase ledger before the year end and there is a purchase accrual at the year end.
For goods received after the year- end, I will select a sample of goods received notes issued after the year-end, and follow through to the purchase invoice. For these goods I will check that:
- Neither the purchase invoice has been posted to the purchase ledger before the year end nor a purchase accrual been made;
If there are perpetual stock records, I will check that the items received have not been included in the stock records before the year- end.
There will be cut off error where either:
- The purchase invoice has been posted to the purchase ledger before the year end,; or;
- There is a purchase accrual made.