Five Inventory Cut-Off Mistakes We Still See at Year End

Cut-off testing looks mechanical until a shipping clerk uses yesterday’s date stamp or a return sits unposted for a week. The distortions land in cost of sales and inventory, and they are easy to miss if the audit team only samples large invoices.

First, goods shipped FOB destination near year-end often remain in inventory while revenue has already been recorded. Match bills of lading to the revenue recognition policy, not to the warehouse exit time alone. Second, customer returns received after year-end may relate to December sales; without a returns reserve or cut-off schedule, gross sales stay inflated.

Third, consignment stock at customer sites is frequently omitted from physical counts. Ask for location lists and confirmation letters before observation day. Fourth, internal transfers between plants create phantom shortages when one location books the issue and the other delays the receipt. Fifth, scrap write-offs timed for tax planning can erase variances that should have been investigated as theft or process loss.

Strong cut-off work pairs document inspection with floor observation. Photograph last shipment and first receipt tags. Reconcile shipping logs to sales invoices for the final three business days. When management already knows these weak spots, fieldwork stays focused on judgement rather than reconstruction.