Question

One test that is often conducted for the acquisition and payment cycle is the Accounts Payable Cutoff Test. What category does this test fall under? Can you explain the test and why it is performed?

Answer 1

Accounts payable cuttoff test are done to determine whether transactions recorded a few days before and after the balancesheet date are in cluded in the correct period .

Accounts payable cut odd procedure.

Most vendor have their own billing cycle. this is good because it helps accounting know when to expect what bills.howeve, an accounting department can not rely on outside vendors for consistency. procedure place consistency in the calculation of how and when vendor payments are made , set exact time for cuttoffs other wise caryyover might affect another month’s balance sheet.

All payments should be immediately entered in to the ledger when made, However, , someone should be monitoring the month end incoming invoices and payments. It is important to classify the expense and the liability in the right billing cycle . for an example , If a vendors send a invoics on July 27 for work done in June 27 , this is liability for June and expese for July . The expense and liability would be for the same month if the work was done in July not in June.

Accounting checks must understand how the company defines liabilities, assets, expenses and revenues to ensure the books are accurate from month to month .cuttoff period should trigger limited access to accounting data for accuracy and consistency.