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Automate the Month-End Cutoff

A standard task item on the month-end closing list is to coordinate a “cut off” of incoming goods at month-end. This involves segregating all receipts subsequent to month-end, so they are not included in the month-end inventory count. Also, other miscellaneous receipts are segregated so their associated expenses are not incorrectly recorded in the wrong month. This cut-off task requires a considerable amount of communication with the receiving department, frequently resulting in problems recording expenses in the proper month when the procedure is forgotten or ignored. It is also a problem for those people waiting to receive items that have arrived, but which are segregated and have not been entered into the computer system yet as having been officially received.

It is possible to completely ignore the cut-off procedure by requiring the receiving staff to enter all receipts into a computer that is accessible by the accounting system. As long as the receiving staff makes its entries in a timely manner and the computer system date-stamps all receipts, it is easy to determine which receipts fall on either side of the cut off date. The system should also generate a report listing the items received prior to the month-end cut off date; if this report can be linked to the purchase order database, it may also be possible to include the extended cost of each received item on the report, which is ideal information for accruing an expense for any received items for which no supplier invoice has yet been received.

It may be necessary to have the internal audit staff occasionally review the timeliness of these entries by the receiving staff to verify that they are indeed being entered in the correct accounting period.

Podcast

There are multiple discussions about the fast close in Episodes 16 through 25 of the Accounting Best Practices podcast.