Cut-off procedures mean procedures employed to ensure the separation of transactions at the end of one year from those in the commencement of the next year. Usually, the problem of overlap is found in inventory accounting since quite often goods are sold but passed on to the buyer only after the year is over or goods are bought but received only after the close of the year. This situation may create considerable problem in quantification of inventory. Therefore, the principal areas of application of cut-off procedures involve sales, purchases and stock. The auditor should satisfy himself by examination and test-check that these procedures adequately ensure that:
Goods purchased for which property has passed to the client have in fact been included in the inventories and that the liability if any, has been provided for;
Goods sold for which property has passed to the owner have been excluded from the inventories and credit has been taken for the sales and debit has been given to the customer.