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Syllabus D. Audit Evidence D4. The audit of specific items

D4b. Inventory - Cut-off

Syllabus D4b)

Explain the audit objectives and the audit procedures in relation to: Inventory:
ii) cut-off testing

Cut-off affects inventory, cost of sales, sales, payables & receivables.. phew!

Sales Cut-off

Ensure sales are shown in the right period. 

It's not just sales that would be wrong otherwise but also receivables and closing inventory (oh yes it would be a jolly wolly mess if we get it wrong)

  • Not only that, my little F8 ball of cut-off awesomeness, you need to be careful that the debit entry is not in receivables AND inventory

Purchases Cut-off

This is just as exciting..

All purchases must be shown in the right period too - amazing right?! :)

This will effect inventory also

  • Correct Entries

    Dr Purchases Cr Payables

    Also it will be in closing stock (if not sold)
    Dr Inventory (SFP) Cr Cost of Sales

Audit work

  1. Goods received notes

    Record the numbers of these around the year end

    • Those dated before year end - included in Inventory

    • Those dated after year end - not included in inventory

  2. Despatch notes

    Record the numbers of these around the year end

    • Those dated before year end - not included in Inventory

    • Those dated after year end - included in inventory