Glossary: Period-End Cutoff

Period-end cutoff is the principle that every transaction is recorded in the accounting period in which it occurred, together with the procedures a business uses to draw that line at the end of a month or year. For an ecommerce seller, it means deciding which of an order's several dates puts it in December or January, and applying that decision the same way to sales, refunds, inventory, and bills.

Why it matters

Auditors treat cutoff as one of the core claims a set of financial statements makes. The international auditing standard on risk assessment, ISA 315 (Revised 2019), lists it among the assertions about classes of transactions: "transactions and events have been recorded in the correct accounting period." The AICPA's equivalent standard for US private-company audits uses the same assertion. Even if nobody audits your books, your CPA, your lender, and any future buyer are relying on it.

Ecommerce makes cutoff harder than it is in most businesses because a single order has many clocks:

• the order date, when the buyer clicked
• the ship date, when it left the warehouse
• the delivery date, which starts Amazon's seven-day reserve under its DD+7 policy
• the settlement close, when the marketplace's statement period ended
• the payout date, when the marketplace sent the money
• the bank date, when it arrived

Bills have their own: the date of the activity, the date of the invoice, and the date you paid it. A seller who books sales by payout date and bills by invoice date has two different cutoffs running at once, and both are wrong on accrual books.

The usual rule is simple to state. Revenue belongs to the period you earned it, under your revenue recognition policy (commonly shipment or delivery). Costs belong to the period the goods or services were received. Cash dates decide nothing except the cash account. The accrual vs cash accounting entry covers the underlying basis.

Worked example

Illustrative numbers. Take a seller that recognizes revenue at shipment and closes December 31, 2026. Five items sit near the line:

1. A Shopify order for $240, placed 11:40 p.m. December 31 and shipped January 2. Under a shipment policy, this is January revenue, even though the order and the card capture are dated December.
2. An Amazon order for $1,800 in sales, shipped December 30, delivered January 2, paid out January 12. December revenue. The payout date is irrelevant.
3. A container worth $12,000, shipped December 22 on terms that pass title at the origin port, arriving January 3. December inventory, with a $12,000 payable.
4. A 3PL invoice for $3,150, dated January 6 for December storage and pick and pack. December expense.
5. A $420 refund, processed January 8 for a return on a December order. January refund, unless you book a year-end returns estimate, in which case it draws down that estimate.

Now suppose the bookkeeper had used payout dates for sales and invoice dates for bills, and booked Shopify at order date.

• Revenue: item 2's $1,800 lands in January instead of December; item 1's $240 lands in December instead of January. December revenue is understated by $1,800 minus $240, or $1,560.
• Expenses: item 4's $3,150 lands in January. December expense is understated by $3,150.
• Balance sheet: item 3 is missing from December inventory and payables, each by $12,000.

December profit is off by $3,150 minus $1,560, or $1,590 too high. The errors partly cancel, which is why cutoff problems often survive a quick review: the bottom line looks plausible while revenue, expenses, and the balance sheet are each wrong.

The biggest single cutoff item for most Amazon sellers is the settlement that runs across New Year's Eve, worked through in the Amazon settlement that straddles two years. The bills side is covered in year-end accruals.

How ConnectBooks handles it

ConnectBooks reconciles the sales, fees, and refunds in marketplace settlements and syncs them to QuickBooks or Xero, as summarized entries or item-level detail, rather than leaving one deposit on the payout date. That addresses the most common cutoff error for marketplace sales, provided you confirm how a settlement spanning month-end is dated. It does not decide your revenue recognition point, move a supplier invoice to the period the goods arrived, or estimate returns. Those cutoff calls stay with you and your accountant, and the month-end routine in the Amazon month-end close checklist is where they get made each period.

Related terms

• Accrual: an entry that records revenue earned or an expense incurred before the cash or the invoice. The tool that fixes most cutoff gaps.
• Clearing account: a balance sheet account where marketplace activity posts by transaction date and payouts clear it. Its balance at period end is what the marketplace owes you.
• Inventory in transit: goods you own that are between locations. Shipping terms decide which period's inventory they belong to.
• Settlement period: the window a marketplace statement covers. It rarely lines up with month-end.
• Reversing entry: an accrual set to reverse on the first day of the next period, so the real invoice does not double the cost.

FAQ

What is a cutoff test?

A check that transactions just before and just after period-end landed on the right side. Pull the last few days of December and the first few of January from each channel, plus receipts and bills in the same window, and confirm each one's date against its source document. Auditors do this; sellers can too.

Does cutoff matter if I file taxes on a cash basis?

Cash-basis books follow cash dates by design, so marketplace payout timing is what it is. But cash basis has eligibility limits, inventory rules still apply, and lenders and buyers usually want accrual statements. Ask your CPA which basis applies to you.

How late can I record a December bill?

As late as the books are still open. Most sellers set a close date in mid-January and accrue anything known but not yet invoiced by then. After the books close, a late item usually goes into the current period unless it is large enough to justify reopening.

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