Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially prenumbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a prenumbered shipping document and sends a copy to the accounting department where they record the sale in the sales journal. All sales are FOB shipping point.

Required:

How can the auditors determine whether Precision Industries Inc., has made a proper cut-off of sales transactions? Assume that all shipments for the first five days of the following year were recorded as occurring in the current year, if not corrected, what effect will this cutoff error have upon the financial statements for the current year?