The documentary cycle and its impact on internal control

The documentary cycle is considered the beating heart of the company, as it is responsible for recording all accounting data on which the financial statements, net profit, sales and tax value are based is the first step of the accounting cycle.

Amr Farag - • Internal Control

The documentary cycle and its impact on internal control: -

Companies carry out many daily operations during their work, which need to be recorded constantly so as not to forget or be lost, recording these operations in detail and daily in records and books and according to the type of operations. All this is called the "documentary cycle".

The documentary cycle is the beating heart of the company, as it is responsible for recording all accounting data on which the financial statements, net profit, sales, tax value and all types of accounting documents are built, so it is of great importance to the company, and as we are used to, we will explain to you the details of everything related to the accounting cycle and what we can provide services about it.

What is a documentary course ?

It is considered the first step of the accounting cycle, which represents the line drawn for the accounting document within the company, which begins with recording each statement and operation that takes place on a daily basis in the form of accounting entry, through its proof in the income statement and the statement of financial position, and ending with financial and tax reports.

In order for the documentary cycle to form this role, it needs to meet the following conditions:

- Achieve control and internal control of all the company's operations.

- Helps to facilitate the procedures of the conduct of operations.

- Documents are uncomplicated and their information is characterized by fluidity and speed of registration.

- The documents should provide all financial data, which are used in data analysis, book registration, preparation of financial statements and reports.

What is the importance of the documentary cycle?

- Accounting documents and records are the greatest evidence of the company's work and the existence of financial operations carried out in it.

- Provide objective, documented and recognized data from government agencies.

- The sound documentary cycle preserves the rights of project owners, citizen buyers and entities dealing with the company financially.

- Division of functions between departments and determine the responsibility of each department.

- If the operations are not documented in documents, they are often not recognized between individuals, companies or even legally.

- It is considered a major source of internal control over the company's financial and administrative business.

- Helps company managers make rational decisions.

- Increase the interdependence and communication between the departments and departments of the company.

- It is considered the main element for providing financial statements with data, which means that it is an essential element in determining the profits and taxes of the company.

Steps of the documentary cycle

- Record data in the journal.

- Post the statement to the ledger.

- Make a balance by review before making settlements.

- Implementation of inventory and adjustments.

- Preparing the trial balance list after completing the settlement.

- Preparing and processing all accounts and financial statements.

Thus, the documentary cycle includes three main functions:

– Granting approval to conduct a documentary transaction.

– Record the transaction as a statement.

– Responsibility for the covenant.

The sample document includes several documents such as:

– Cash receipt.

– Cash receipt.

– Purchase orders.

– Exchange permits for all items in stores.

– Copies of the minutes of review and receipt of the goods in the warehouse.

– Return permissions to return items to the supplier.

– Exchange permits for the distribution of items from stores.

– Item cards.

– Covenant settlements.

These steps can be divided into different types according to each financial transaction as follows:

Types of documentary cycle :

It is based on different types of accounting documents and these documents vary according to the process that registers them, and they can be divided as follows:

Documentary Cycle for Procurement :

The movement of cash and the operations related to the purchase are evidenced by documents, which begin with the receipt of a purchase order from the supplier, who in turn displays his price, so that the company issues the purchase order, then an invoice for the value of the purchases issued by the supplier, then a notice upon receipt of the goods from him, and finally the exchange permit issued by the company to the supplier.

Sales documentary cycle :

It means proof of all sales operations conducted by the company, which begins with the request for prices requested by the customer, then the company submits his offer to the customer, then the sales order is issued, then an invoice for the value of the sales, after which the permission for the disbursement of the goods and the receipt for the value of cash are issued.

Documentary cycle for warehouses :

The documentary cycle of the stores is initially based on the work of a permission to add goods to the stores, then the transfer permission and a record of inspection and receipt is opened after the examination, a warehouse exchange permit or a goods exchange permit is issued and a receipt notice is prepared with the quantity and value of the goods from the customer, and in the event of returns, a return bond is issued for the goods.

Documentary cycle in receipts and expenses :

Buying and selling operations are based on receiving money or disbursing money, which is proven by an exchange or receipt of cash, and the sale is proven by term and various payment or exchange methods such as bank checks, deposit lists, and others. The documentary cycle also includes other types such as a document cycle in the sustainable covenant, salaries, wages, etc., some companies separate each documentary cycle from the other and some combine these documents into one cycle.

Is a documentary course a sufficient tool for your company's financial control?

Although the documentary cycle is one of the most important tools of financial control, this is completely unsafe because its adequacy is linked to its validity, the more the separation of jobs, the stronger the adequacy of the document cycle, so one employee doing all the tasks of the documentary cycle may certainly expose him to omissions or errors.

At the present time, and with the large size of companies and the increase in embezzlement and theft, in which more than one party may participate.. You cannot rely entirely on the role of internal control only, and you must need an external auditor.

When the external auditor's job begins to examine the company's documentary cycle. In the case of separating documents, the external auditor reviews each accounting entry and ensures that the financial reports match what is contained therein, but in the case of merging the company's documents, the auditor must verify the efficiency of separating each document and each document cycle.

How does the external auditor examine the documentary cycle?

· Ensure the integrity of the document form and its general form and the presence of the logo of the document issuer on it.

· Ensure that the administrator signs the important documents and form.

· Review the calculations and ensure the integrity of their results and their conformity with what is mentioned in the form.

· Review the invoices attached to the form with the invoices of the party that issued the invoice.

Is there a difference between the documentary cycle and the accounting cycle?

· The accounting cycle includes a summary of all policies and procedures of financial operations, which take place during the accounting period includes analysis, recording tabulation and even access to the company's final financial statements.

· The documentary cycle represents the tools used to complete the accounting cycle, which belongs to every document and record that is certified, proven, legally sound and documented to carry out financial operations.

· The accounting cycle is a fixed process for each company whose stages do not change from one place to another, while the documentary cycle can change according to the size and nature of each company.

What services do accounting firms provide for the documentary cycle?

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