Quick answer
An open purchase order becomes a liability when the client receives the goods or the service is performed, even if the invoice arrives after year-end. CPA firms find these items in four steps. Pull the open PO report at December 31, confirm receipts with the client, accrue only what was received, then test January invoices against the accruals. ProcureDesk keeps the PO, the receipt and the invoice in one system, so the received-not-invoiced list is ready before year-end work starts.
Key takeaways
- An open PO becomes a liability when the goods arrive or the work is finished, not when the invoice comes.
- Most misses come from late-December deliveries, services billed later, partial receipts, purchases with no PO and invoices stuck in approval.
- Testing only January payments misses invoices that are unpaid or were never entered.
- Start in November 2026, pull the open PO report on January 4, 2027, and accrue only what was received.
- Post the accrual to Accrued Liabilities, reverse it on January 1, and check for receipts already on the books.
- Receipts logged against POs all year turn the 2027 cutoff into a review, not a rebuild.
What is an unrecorded liability in an open PO?
On January 9, 2027, a client forwards a $12,000 maintenance invoice. The vendor finished the work on December 18, 2026. The December books show nothing for it, and the 2026 close is already under way. That gap is an unrecorded liability, and open purchase orders are where most of them start.
An open purchase order (PO) is a promise to buy. It becomes a liability on the day the client receives the goods or the vendor finishes the service. Issuing the PO or receiving the invoice does not change that date. Under accrual accounting, the expense belongs in the period of delivery. The PO itself sits outside the books. In most small-business accounting systems, it doesn’t touch the general ledger until someone converts it into a bill.
So at December 31, every open PO falls into one of four situations, and only two of them create a liability.
| Status at December 31 | What happened | Treatment in the books |
|---|---|---|
| PO issued, nothing delivered | The client committed to buy | No liability. Track it as a commitment. |
| Delivered or performed, no invoice yet | The client received the goods or the service | Accrue the expense and a liability |
| Partly delivered | Only part of the PO arrived | Accrue the received portion only |
| Invoice already entered | The bill sits in accounts payable | Check that the invoice date and the period match the delivery |
This guide is for CPA firms, bookkeepers and QuickBooks ProAdvisors getting clients ready for the December 31, 2026 close. It covers where these liabilities hide, what a miss costs, and a dated six-step review with an output for each step.
Free year-end checklist
Close 2026 with the accounts payable year-end checklist
The full AP close list this cutoff review fits into, from open POs and accruals to 1099 prep.
Why do unrecorded liabilities slip past the year-end close?
They slip past because the receipt and the invoice live with different people. Operations staff receive the goods, sign the packing slip and move on. The PO sits in an email thread or the accounting system, and the invoice reaches an AP inbox weeks later. Nobody owns the link between the three, so finance learns about a delivery only when the bill shows up.
At year-end, that gap shows up in five predictable places:
- Goods received in late December, invoice in January. Vendors often invoice days or weeks after shipping, so the bill lands in the next period.
- Services performed in December and billed later. Maintenance, contractors, freight and professional fees leave no delivery to log, so nobody records a receipt.
- Partial receipts on large or blanket POs. The PO stays open while pieces arrive over several months, and the received portion at year-end often gets missed.
- Purchases with no PO. Card swipes and emailed orders leave no record until the statement or the invoice shows up.
- Invoices held in someone’s inbox. A December-dated invoice waiting for approval hasn’t reached the books, even though the cost belongs to the old year.
The usual January fix makes the gap wider. The controller or bookkeeper emails the operations team and waits for answers. Receipts get logged days late, and some never get logged. The accrual list is built from partial information, so it reflects judgment calls as much as confirmed facts.
Kevin Slatnick, CFO of the pilot training company Coast Flight, saw this every month before his team moved the work into ProcureDesk. “We spent several days each month trying to figure out where all these invoices went,” he said. Coast Flight now reports spending 25% to 35% less time processing invoices.
Customer story
How Coast Flight cut invoice processing time by 25% to 35%
See how a finance team stopped chasing invoices every month.
What happens when a year-end accrual is missed?
A missed accrual surfaces during the audit or review, and the cleanup lands on the CPA firm. The search for unrecorded liabilities is a standard audit procedure. Auditors review invoices and payments recorded after year-end, plus receiving records near December 31. Then they ask whether each item belongs in the earlier period.
Payments alone are not enough. In an August 2026 guide, the audit platform Fieldguide notes that most teams test only subsequent payments. That misses invoices posted late and invoices that were never entered. It also calls recording invoices only when they are paid a weak control design.
When an item is found late, it comes back as a proposed adjusting entry, a restated P&L or a call to the client. The client wants to know why net income moved, and the firm absorbs the time it takes to explain and fix it.
What one missed accrual costs the firm
- An adjusting entry the client did not expect, and a P&L that changes after it was shared.
- Unbilled January hours rebuilding the received-not-invoiced list from emails.
- Accrual-basis figures used for tax preparation that may need to change.
- A harder conversation about why the books were wrong.
Finding these items in November and December costs less than finding them in February. That is the case for running a defined review before the year ends.
What is the right way to run a year-end cutoff review?
Run it from receipts, not payments, and start before the year ends. Confirm what actually arrived by December 31 and accrue only that. Then test January bills, paid and unpaid, against your list. Close stale POs and agree the 2027 rules in the same cycle, so next year starts clean.
The calendar below sets the dates for a December 31, 2026 year-end. December 31 falls on a Thursday and New Year’s Day on a Friday. That makes Monday, January 4, 2027 the first business day of the new year.
Year-end 2026 cutoff calendar
From the November client questions to the 2027 controls meeting
- Nov 9 to Nov 20, 2026Send the six client questions and agree the PO threshold for receipt confirmations.Output: answers and a cutoff risk rating per client
- Nov 30 to Dec 11, 2026Client closes or cancels POs with no activity for 90 days or more.Output: a short list of cancelled POs
- Dec 14 to Dec 31, 2026Receiving staff log every receipt, full or partial, and confirm finished services.Output: receipts recorded against POs
- Thu, Dec 31, 2026Cutoff date.
- Mon, Jan 4, 2027Run the open PO report as of December 31, save a copy, and send the list for receipt confirmation.Output: a dated open PO report
- Fri, Jan 8, 2027Receipt confirmations due back from the client.Output: signed or emailed confirmations
- Jan 11 to Jan 15, 2027Value what was received. Post the accrual dated December 31 and the reversal dated January 1.Output: an accrual schedule and both entries
- Jan 11, 2027 to fieldworkTest January bills and payments, including bills entered but not yet paid.Output: January invoices matched to accruals
- Late Jan to Feb 2027Agree the 2027 controls with the client.Output: owners and dates for each control
How do you search for unrecorded liabilities in open POs, step by step?
Start with six questions in November, then run six steps in January. The steps work at any client that issues POs, whatever accounting system they use. Each step ends with something you can file in the workpapers.
Before December: ask the client six questions
Send these before Thanksgiving. The answers show how much cutoff risk each client carries. Clients with unclear answers to the first, second and sixth questions need a closer review in January.
- Which purchases require a PO today, and above what dollar amount?
- Who confirms that goods arrived, and how soon after delivery do they record it?
- How does anyone confirm that a service is finished?
- How many POs have been open for more than 90 days?
- Where do vendor invoices go when they arrive, and who enters them?
- Which purchases skip the PO process altogether?
Step 1: Pull the open PO report as of December 31
Run the report on the first business day of January and save a copy. For this year-end, that is Monday, January 4, 2027. The saved report documents the cutoff date, and later changes to PO status won’t alter it. Output: a dated open PO report for the client file.
Step 2: Ask for receipt confirmation on every PO above your threshold
Set the threshold with the client. Then send the list to the person who knows what arrived, with a due date in the first week of January. Include service POs and ask whether the work was finished by December 31. Output: a signed or emailed confirmation for each PO on the list.
Step 3: Value only what was received
For a partial delivery, accrue the quantity received at the PO price. For a service that is partly finished, accrue the portion completed by December 31. Anything not yet delivered stays a commitment. Output: an accrual schedule showing PO, vendor, amount received and amount still open.
Step 4: Post the accrual to Accrued Liabilities
Debit the expense account (or the asset account for equipment) and credit Accrued Liabilities. A manual entry posted directly to Accounts Payable can break the reconciliation between the AP subledger and the control account. Reverse the entry on January 1 so the invoice doesn’t count twice when it arrives.
Check the client’s system before you post. QuickBooks Desktop item receipts and Sage Intacct receipt accruals can put the liability on the books before the bill arrives. A second accrual on top of those would count it twice. Output: the accrual entry and its reversal, both tied to the schedule.
Related guide
Purchase order accruals at quarter end
Failure points and reversal timing for the same entry, every quarter.
Step 5: Test the subsequent period
Review January bills and payments through your fieldwork date. Any invoice for goods or services delivered in December should match an accrual you booked. Include January invoices that are entered but not yet paid, and reconcile statements from the client’s largest vendors. Output: a list of January invoices matched to accruals, with any misses followed up.
Step 6: Close or cancel stale POs
A PO with no activity for a quarter or more clutters the report and hides real open items. Ask the client to confirm whether it is still active, and close the ones that are not. Output: a short list of cancelled POs and the owner who approved each cancellation.
Example: booking the $12,000 maintenance invoice
Go back to the invoice from the start of this guide. The client ordered $12,000 of equipment maintenance in November. The vendor finished the work on December 18 and sent the invoice on January 9. The December books need this entry, which reverses on January 1:
| Account | Debit | Credit |
|---|---|---|
| Repairs and Maintenance | $12,000 | |
| Accrued Liabilities | $12,000 |
When the invoice is entered in January, it posts to expense in the normal way. The reversal cancels the December accrual. Net income for 2026 is right, and January carries no extra cost.
What do the client and the firm gain from a receipt-based review?
The client gets a clean 2026 close, and the firm gets predictable work it can price. Both gains grow in 2027 if the controls agreed after the close stay in place.
For the client: no surprise adjustments and a lighter 2027 close
Instead of a January scramble, the client receives four deliverables: the open PO list, receipt confirmations, accrual entries and a tested January. Net income is right the first time, and nobody has to explain an adjustment after the P&L was shared. The faster month-end close use case shows what that looks like for a finance team.
To keep the 2027 close just as clean, agree these controls with the client in late January or February:
- A PO above an agreed dollar threshold, because purchases with no PO leave no record until the invoice arrives.
- Approval before ordering, so the commitment is visible before the money is spent.
- Receipts logged within two business days, full or partial, against the PO.
- Written sign-off when a service is finished, since services leave no packing slip.
- A monthly received-not-invoiced review, which makes the Q1 2027 accruals routine.
- A quarterly review of POs open 90 days or more, so stale POs stop cluttering the December report.
Framework
The PO-before-invoice rule
How to get clients to approve spend before the invoice exists.
With these in place, year-end becomes the twelfth monthly check, not the first. Purchase order approval software covers how the approval step works in practice.
For the firm: a service you can price and repeat
Many firms treat cutoff as unpaid cleanup in January. Packaged as three dated pieces of work, it becomes scoped advisory work: a November readiness check, the January cutoff review and a 2027 controls setup. Firms in the ProcureDesk CPA Partner Program also earn a recurring share of the subscription for each client they refer, and ProcureDesk runs client implementation.
Two boundaries apply. Management still approves and posts the entries. If your firm also audits the client, check your independence rules before you take on the review.
For CPA firms
Add spend control to your client advisory offering
Talk to us about the ProcureDesk CPA Partner Program: revenue share, and we run client onboarding.
Where ProcureDesk fits
ProcureDesk keeps the PO, the receipt and the invoice in one system, so the received-not-invoiced list comes from confirmed receipt records. A purchase request is approved before it becomes a PO. The receiving team logs each receipt, in full or in part, against that PO using receipts and GRN. When the vendor invoice arrives, invoice matching compares it to the PO and the receipt.
Material purchases use a three-way match. Service invoices use a two-way match against the PO before review and approval. The three-way match definition explains the difference.
ProcureDesk syncs with QuickBooks, NetSuite, Sage Intacct, Microsoft Business Central, Xero and Bill.com, among others. It doesn’t post journal entries to the general ledger, so your team still books the accrual and the reversal, now from confirmed data. Implementation takes 2 to 3 weeks, so a client that starts in mid-November can log December receipts before the cutoff.
See it working
See a received-not-invoiced list built from real receipts
A 30-minute walkthrough of POs, receipts and matching for your clients.
Frequently asked questions
What is an unrecorded liability?
An unrecorded liability is a cost the client owes at period end that is missing from the books. It usually happens because the vendor invoice hasn’t arrived or been entered yet.
What are examples of unrecorded liabilities?
Common year-end examples are goods received in late December but invoiced in January, and services finished in December but billed later. Others are the received part of a partly delivered PO, purchases made without a PO, and December invoices still waiting for approval.
Does an open PO need to be accrued at year-end?
Only for the portion where goods were received or services were performed by year-end. The undelivered portion is a commitment, not a liability.
What does goods received not invoiced (GRNI) mean?
GRNI describes goods the client has received and has not yet been billed for. The GRNI list is the starting point for the year-end accrual.
What is the journal entry for an unrecorded liability?
Debit the expense (or asset) account and credit Accrued Liabilities, then reverse the entry on the first day of the new period. Post it to Accrued Liabilities, not Accounts Payable. That keeps the AP subledger in balance.
Why reverse the accrual on January 1?
The reversal keeps the January invoice from counting twice. When the invoice is entered, it posts to expense once, and the reversal cancels the December accrual.
How do you accrue a service that is only partly finished?
Accrue the portion completed by December 31, based on the client’s written confirmation of the work done. The unfinished portion stays a commitment.
How do auditors search for unrecorded liabilities?
Auditors typically review invoices and payments recorded after year-end. They also review receiving records near the cutoff date. The goal is to see whether any item belongs in the earlier period.
Which procedures miss unrecorded liabilities?
Testing only payments made after year-end misses invoices that are entered but unpaid, and invoices never entered at all. Reviewing receiving records near December 31, unpaid January bills and statements from major vendors closes that gap.
When should the year-end 2026 cutoff review start?
Start in November 2026. Send the client questions by November 20, pull the open PO report on Monday, January 4, 2027, and test January invoices through fieldwork.
What if the client can’t confirm what arrived?
Ask for packing slips, delivery confirmations or a vendor statement, and accrue the amounts those documents support. Record the gap in the workpapers so the reviewer can see what was estimated.
Does ProcureDesk post accrual entries to the ledger?
No. ProcureDesk produces the received-not-invoiced list from receipt records, and your team books the accrual and the reversal in the client’s accounting system.
Which accounting systems does ProcureDesk work with?
ProcureDesk integrates with QuickBooks Online, Desktop and Enterprise, NetSuite, Sage Intacct, Microsoft Business Central, Xero and Bill.com, among others.
About this guide
Sachin Sharma wrote this guide from ProcureDesk’s work with finance teams that receive goods against POs. Dates are set for the December 31, 2026 year-end. Last reviewed November 2026.
This article is general guidance for CPA firms, not audit or tax advice. Confirm the treatment of specific items with the client’s auditor.
Resources
See it working
Start your clients’ year-end with a clean received-not-invoiced list
See how ProcureDesk ties the PO, the receipt and the invoice together.
About the author
Sachin Sharma
Sachin Sharma is the CEO of ProcureDesk and has spent over 23 years in procurement and supply chain technology. He previously led procurement operations at a Fortune 500 company before founding ProcureDesk. Connect with him on LinkedIn.
