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Proper Cutoff- Subcontractor Invoices

As you're well aware of, subcontractor invoices for work performed in the current year are often received in the subsequent year. This has often led many contractors to record the costs in the subsequent period. This practice can ultimately lead to material misstatements in your financial statements. Therefore, it's crucial to have proper cutoff procedures at year end. Cutoff here refers to including all costs in the period in which they were incurred and not recording (or cutting off) anything related to the subsequent period.

One way to do this is to pull up a general ledger detail for the subcontractor cost account and scan the latest invoices recorded. Pull up the subcontractors' pay apps associated with your selections and examine the periods covered along with the total contract in relation to what's been billed so far. This should let you know whether you should be expecting another pay app for the current year. You can get with your project manager to determine how much should be recorded by year end if you can't get copy the pay app before it's time to close the books.

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