Why are the proper cutoff of purchases and sales heavily dependent on physical inventory observation? What information should be obtained during the physical count to make sure that cutoff is accurate?

A proper cutoff of purchases and sales is heavily dependent on the physical inventory observation because a proper cutoff of sales requires that finished goods inventory included in the physical count be excluded from sales and all inventory received be included in purchases. to make sure the cutoff for sales is accurate, the following information should be obtained during the taking of the physical inventory: 1. the last shipping document number should be recorded in the working papers for subsequent follow-up to sales records. 2. a review should be made of shipping to test for the possibility of shipments set aside for shipping and not counted or other potential cutoff problems. 3. when prenumbered shipping documents are not used, a careful review of the clients method of getting a proper sales cutoff is the first step in testing the cutoff. 4. a list of the most recent shipments should be included in the working papers for subsequent follow-up to sales records. for the purchase cutoff, the following information should be noted: 1. the last receiving report number should be noted in the working papers for subsequent follow-up to purchase records. 2. a review should be made of the receiving department to make sure all inventory has been properly included in the physical inventory.