(Meaning of Cut-Off Arrangement)
Cut-off Arrangement: Accounting is a continuous process because the business never comes
to halt. It is, therefore, necessary that transactions of one period would be separated from those
in the ensuing period so that the results of the working of each period can be correctly
ascertained. The arrangement that is made for this purpose is technically known as “cut-off
arrangement”. It essentially forms part of the internal control system of the organisation.
(Areas Where it Matters Most)
Accounts, other than sales, purchase and inventory are not usually affected by the continuity of
the business and therefore, this arrangement is generally applied only to sales, purchase and
(Importance of GIT in Cut-Off)
The auditor satisfies by examination and test-checks that the cut-off procedures are adequately followed and ensure that:
(i) Goods purchased, property in which passed on to the client, have in fact been included in
the inventories and that the liability has been provided for in case credit purchase.
(ii) Goods sold have been excluded from the inventories and credit has been taken for the
sales. If the value of sales is to be received, the concerned party has been debited.
The auditor may examine a sample of documents, evidencing the movement of inventory into
and out of stores, including documents pertaining to period shortly before and after the cut-off
date and check whether inventories represented by those documents were included or excluded
as appropriate during inventory taking for perfect and correct presentation in the financial