Acca aa s21 Notes

4. Cut-off: purchases
Cut-off is the assertion that classes of transactions (and events) have been recorded in the correct 
accounting period. If a goods receive note is dated shortly before year end then, assuming those 
items have not been sold already, we would expect them to be found in inventory and if they are 
recorded in inventory, they should also be recorded in purchases and payables. 
If they were counted in inventory but not in purchases and not in payables, the calculation of profit 
would be incorrect. The purpose of the closing inventory adjustment is to adjust the purchases figure 
to give a cost of sales figure. 
If a goods received note, however, is dated after year end, the likely assumption should be that the 
goods were not in inventory at the year end date and therefore were not counted. If they are not in 
inventory they shouldn’t be in purchases and they shouldn’t be in payables.
We are looking here at consistency. At one level that doesn’t really matter whether goods are 
included in inventory or have not yet been received. But we must be consistent: if they are in closing 
inventory we have to recognise that we have purchased them; if they are not in closing inventory 
because they haven’t arrived yet, we mustn’t recognise that we have purchased them. 
Part of what the auditor is likely to do when attending a physical stocktake at year end is to note 
down the numbers of good received notes issued in the last few days of the year so that later the 
auditor can check that the company has properly accounted for those items being purchased and 
being in payables.
September 2021 to June 2022 exams
Watch our free ACCA AA lectures
97

---

Only on 
OpenTuition
you can find: Free ACCA notes 
•
Free ACCA lectures 
•
Free ACCA tests 
•
Free ACCA tutor support 
•
The largest ACCA community