Which Month Owns the Transaction?
Use promises, delivery and payment rights to separate this month from the next.
The invoice says October. The books are still in Maya’s warehouse. Has Stories Inc. made an October sale?
An invoice date makes that question look easier than it is. It tells us when somebody created a bill. To decide when revenue belongs in the accounts, we need to know what the business has promised and whether it has fulfilled that promise.
This is the first question in our month-end cheat sheet: what belongs in this month? Accountants call the boundary cut-off. Getting it wrong moves performance between periods, even when the eventual cash receipt is perfectly real.
One transaction has several dates
An order can arrive on Monday, leave the warehouse on Wednesday, reach the customer on Friday, be invoiced the following Tuesday, and be paid a month later. These dates describe different events. They do not all answer the revenue question.
Under IFRS 15, the central question is whether a promised good or service has transferred to the customer. Some promises are fulfilled at a particular point; others are fulfilled over time. The applicable contract and facts determine which treatment fits. IFRS 15: Revenue from Contracts with Customers
Our fictional October example uses a deliberately simple contract: control of the books transfers on delivery to the customer. There are no special acceptance conditions or arrangements allowing revenue while Stories Inc. holds the books for a customer.
That makes the evidence concrete. We need the delivery record, the relevant contract terms, and the ledger entry. A sales order alone cannot establish delivery. Neither can a salesperson’s expectation that the shipment will arrive tomorrow.
Remove a sale that has not happened
Stories Inc.’s unadjusted October accounts include $60,000 of credit sales. Of this, $5,000 concerns books still on hand at month end. The bill was issued prematurely, and the contract gives Stories Inc. no unconditional right to payment before delivery.
The close therefore removes the premature revenue and receivable:
| October correction | Effect |
|---|---|
| Reduce revenue | $5,000 |
| Reduce accounts receivable | $5,000 |
| Reduce October profit before tax | $5,000 |
No cost of goods sold was entered for these books, so there is no corresponding cost entry to reverse. They remain in inventory.
That last check matters. If a system had already removed their cost from inventory, correcting only revenue would leave another error behind. The accountant follows the whole transaction through the records.
The payment-right assumption matters too. A valid advance billing can create a receivable before revenue is earned. In that situation, the answer may involve a contract liability rather than deleting the receivable. The date on the invoice cannot settle either question by itself. AASB 15, paragraphs 105–108, sets out the distinction between unconditional receivables, contract assets and amounts paid or due before performance.
Cash can arrive before the sale
Maya also received a $4,000 customer advance for November goods. Somebody credited October revenue when the cash arrived.
The cash is real. October revenue is not: Stories Inc. still owes the promised goods. The correcting entry reduces revenue by $4,000 and recognizes a $4,000 contract liability. It leaves cash unchanged.
After these two corrections, recorded October revenue falls from $64,000 to $55,000. Nothing has been stolen, refunded, or lost in transit. The close has separated this month’s performance from next month’s promises.
The reverse timing is possible as well. A business may have fulfilled a promise before it bills the customer. Whether the resulting asset is a receivable or a contract asset depends on the remaining conditions for payment. A receivable is unconditional except for the passage of time; a contract asset still depends on another condition, such as further performance. The useful starting point is the work performed, followed by the contractual right—not the presence or absence of an invoice.
Costs have a boundary too
Stories Inc. paid $10,000 in wages during October. Employees also earned $2,000 that remained unpaid at month end. October has received their work, so the close recognizes an additional expense and a wage liability.
Payday does not move that work into November. This is the purpose of an accrual: record the period’s expense and obligation even when payment comes later. OpenStax: The adjustment process
Evidence can also arrive after the calendar turns. A later document may clarify a condition that already existed at month end; a genuinely new event is different. Formal financial reporting distinguishes those situations when considering post-period adjustments. IAS 10: Events after the Reporting Period
The aim is a consistent boundary. Pulling revenue forward while leaving related costs behind can manufacture an attractive month and a disappointing next one. A balanced journal entry does not make that timing defensible.
When someone explains a strong finish to the month, ask: what happened before the boundary, and what evidence shows that it belongs there?
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Fictional teaching example. Personal views based on public sources; no confidential employer information or employer endorsement. Accounting policies and business circumstances require case-by-case analysis.