Internal document

What it means

An internal document is issued by the company itself for entries with no third-party paperwork: monthly depreciation, recharges between cost centres, accruals and deferrals, creating provisions and correcting entries.

Its required particulars are those of any accounting document: a designation, the content of the transaction, the date of issue, the date of the event, the amount, the responsible person’s signature and a reference to related documents.

An internal document does not only record purely internal events. It often documents the consequence of an outside event for which no separate document exists in the form needed, such as an exchange difference on paying an invoice in a foreign currency, or the settlement of a business trip. The outside evidence exists; the internal document derives the amount and the entry from it.

How it works in practice

An internal document comes with an attachment explaining the calculation - the depreciation schedule, the deferral working, the stocktake protocol, the recharge agreement. Without it, a year later nobody can reconstruct why the general ledger shows that amount.

Most internal documents repeat, so a template and a fixed set of issuers pays off. The number sequence stays separate from invoices.

We issue most of our clients’ internal documents ourselves as part of the monthly or year-end close: depreciation, estimated items, exchange differences at the reporting date, transfer of the year’s result. Each comes with its calculation, and for items that depend on an estimate we confirm the basis with the client, for example an estimated liability for a service not yet invoiced.

What to watch out for

An internal document cannot stand in for a missing supplier document. Spending with no external evidence does not become deductible because the company wrote itself a piece of paper - that is the first thing an inspection assesses.

An internal document is not rewritten once the period is closed. If the calculation proves wrong, a new document is issued with the correction and a reference to the original, as with any correcting entry. A document rewritten or created after the fact, with no trace in the system history, casts doubt on the whole series of similar documents in an inspection, not just that one.