What it means
Cutoff means each transaction lands in the period it belongs to. Revenue goes in the month you delivered the service, and a cost goes in the month you received the goods or the work. The invoice date and the day the cash moved don't decide it.
Picture month end as a line across the calendar. Cutoff work is checking what sits close to that line and putting each item on the right side.
Most cutoff errors sit in the few days either side of month end. During the close, someone reviews bills and invoices dated in the first week or two of the new month and asks when the work was done. Work done last month is accrued back into last month.
On the revenue side, service delivered in the month is booked even if the invoice goes out later. A deal signed on the last day of the quarter doesn't count until service starts. Auditors test cutoff at year end, because the same timing mistake made on purpose is how results get moved between periods.
A usage-based customer used $4,200 of Acme's service in March, and Acme invoices it on April 5. Booking from the invoice would put the revenue in April. With cutoff applied, March gets $4,200 of revenue and an unbilled receivable. The April invoice moves the amount into regular receivables and adds no new revenue.
Accrued expenses are cutoff applied to costs. Cutoff only holds once the period locks, so a late entry can't slip into a month you've already reported.
Why it matters. Cutoff errors move numbers between months and between years. Auditors test it on purpose, because it's where a good quarter can be made to look better.
The entry, worked
A usage-based customer consumed $4,200 of service in March. Acme invoices it on April 5.
| Account | Debit | Credit |
|---|---|---|
| Unbilled receivables | $4,200.00 | |
| Revenue | $4,200.00 | |
| Total | $4,200.00 | $4,200.00 |
March gets the revenue it earned; the April invoice moves the amount from unbilled to billed receivables.
Common questions
How long should I wait for bills before closing a month?
Many startups close in the first one to two weeks of the next month. Anything that arrives after that is accrued from estimates or booked when it shows up, with a note.
Is a cutoff error the same as fraud?
No. Most are honest timing mistakes. Auditors test cutoff because the same mistake, made on purpose, is a common way to move results between periods.
Which date decides the month: invoice, delivery or payment?
The date the work was done or the goods arrived, for costs, and the date you delivered, for revenue. The invoice date and the payment date are evidence, not the answer.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- CutoffRecording each transaction in the period in which it occurred — the boundary tested at every period endGlossary
- Why startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.Guide · 4 min
- Audit-ready books before your Series AInvestors, lenders and auditors ask for the same things: accrual statements, reconciled accounts and support for every balance. How to be ready first.Guide · 4 min
- Closing the monthStatements are not the end. The close proves every balance against something outside the ledger, then locks the period so the numbers can't quietly change.Lesson 13
- Cash, accrual and cut-offCash accounting records when money moves. Accrual records when value moves. Every hard question in the rest of the course lives in the gap between the two.Lesson 8
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.