Correction
A reporting period divides continuing activity into dated intervals. Under accrual accounting, the cash date alone does not decide when revenue or expense belongs in the statements.
If employees work in December and are paid in January, the December service can create a December expense and year-end liability. The January payment then settles the liability. If a customer pays before the company performs, the cash receipt can create a liability rather than current revenue.
The applicable transaction guidance determines the accounting. The time-period assumption creates the need for cutoff; it does not replace recognition rules.
Check your answer
Retain the service, delivery, invoice, entry, and cash dates. Identify the company's right or obligation at the reporting date and apply the relevant requirements. Reconcile later cash to the earlier balance so a reversal in the next period does not hide a cutoff error.
When this mistake may appear
- Employees work in December and receive cash in January.
- A customer pays before the company performs.
Your work may contain this mistake if:
- Records December service cost only in January.
- Calls every cash receipt current-period revenue.
- Omits cutoff evidence because the cash date is known.