By embracing such systems, accounting managers can address current challenges effectively, paving the way for streamlined processes and greater accuracy in financial reporting. That said, they may store these documents electronically with a date and timestamp for reference. A few of them are delivery dockets, receipts, deposit slips, delivery dockets, orders, and quotes. Examples of source documents are invoice or bill, cash memo, cheque, sales order, purchase order, credit note, petty cash voucher, credit card sales voucher, etc. For example, an electronic record of an employee’s work entered through a company’s timekeeping system on a smartphone can be a source document. Source documents are, first and foremost, important to the bookkeeping and accounting process because they serve as physical evidence that a financial transaction actually occurred.

Source documents definition

Ms. Veena Vijayan is a seasoned Chartered Accountant with over 12 years of extensive experience across various industries. She has held diverse roles, from overseeing finance and accounts departments to serving as Audit Manager and ascending to Audit Partner. Her expertise encompasses finance, accounts, taxation, audits and compliances. Driven by a profound passion for mentoring and training, she is now heading the Academics and Digital Learning divisions in her designation as the Chief Academic Officer at Finprov.

Sales and Purchase Invoices

When a consumer pays their bill, they send a remittance advice to the supplier that includes the payment amount and source document definition accounting the invoice numbers. If payment is made using internet banking, it will either be posted along with the check or separately. A business will fill out an order form when it needs to purchase something. The order form could be as straightforward as a page cut out of a duplicate book or it could also be one that the seller provides through its online store or catalogue.

The bank will keep a record of the transaction so that it appears on both the payor’s and the recipient’s bank statements. In the majority of cases, photocopies of source documents are legally permissible. According to the US Internal Review Service (IRS), as long as these photocopies are complete, legible, and accurate representations of the original document, they are legally acceptable. Accounting standards serve as the rules and guidelines that shape how financial information is recorded and reported. The most widely used frameworks include generally accepted accounting principles (GAAP) in the United States and International Financial Reporting Standards (IFRS) globally.

Types of Source Documents in Accounting

These programs may also explore ethical standards, tax regulations, emerging technologies, and sustainability accounting practices. These tools assist with managing financial transactions, generating reports, and ensuring compliance with tax regulations. Developing familiarity with accounting software may be valuable for students preparing for accounting-related responsibilities.

What are source documents?

• Often referred to as the paperwork needed for financial statements, source documents create a meticulous paper trail for every financial transaction, ensuring that every penny is accounted for.
• An accounting source document serves as an original entry that outlines a business transaction and acts as essential evidence of its occurrence.
• This document, along with a bill of lading or packing list, is used to bill a customer, creating a sale record.
• The source documents serve as proof of amounts accurately recorded in later steps of the accounting cycle, from the accounting journals and ledger to the final financial reports.
• Each transaction listed on a bank statement serves as a data point that helps in maintaining accurate financial records in an accounting journal.

In order to reaffirm the accuracy of the company’s balances in individual accounts, auditors need full access to all the documents. Overall, to run a business more smoothly and enhance transparency, all its source documents should be kept and stored for future reference. Examples of source documents abound in the business world, ranging from receipts, bills, and invoices to checks and statements.

Common Types of Source Documents

As mentioned in the previous lesson, the source document is the first document that exists relating to a transaction. This document, along with a bill of lading or packing list, is used to bill a customer, creating a sale record. It tracks a customer’s order through the company’s process until the items are shipped.

• Additionally, Glasscubes offers visibility on outstanding requests, ensuring that no responses are overlooked in busy inboxes, effectively addressing common email inefficiencies encountered by accountants.
• Any time a business spends or receives money, a source document is created.
• With no source documents to match transactions in reconciled statements, there may not be sufficient documentation to satisfy auditors, which can cause serious problems for your clients.
• Businesses may download bank statements daily to perform daily bank reconciliations, which help detect fraud and understand the current cash balance.
• Over 85% of accountants use digital tools, including accounting software, for financial data management, highlighting the efficiency and accuracy these tools bring to the accounting process.

Trace the Historical Development of Source Documents

Ancient civilizations in Egypt and Greece developed similar practices to manage inventories and tax records. An original record containing the details to substantiate a transaction entered in an accounting system. For example, the source document for a purchase of merchandise is the supplier’s invoice supported by the company’s purchase order and a receiving ticket.

Source documents meaning refer to internal documents containing crucial details regarding business transactions. They prove that the recorded financial transactions occurred and are thus essential for the accounting methods. Since the paper trail of all transactions is easily available to auditors, it enhances the audit’s validity and objectivity. Importance of source documents is to prove that business transactions took place. These documents are necessary for a business to show auditors that the transactions in its financial statements are accurate.

All of a company’s source papers should be saved and stored for later use in order to improve transparency and streamline operations. Accounting degrees are designed to offer foundational knowledge in areas such as financial accounting, managerial accounting, auditing, and taxation. A general accounting degree may also include coursework in business finance, financial systems, and cost accounting. Accounting software streamlines data entry, automates repetitive tasks, and improves the accuracy of financial reporting.

Instead of making payments by check, a business can make payments online or by other electronic means. A check (or cheque) is a common form of payment, instructing a bank to transfer money from one bank account to another. In addition, invoices often indicate when the payment is to be made, the business banking details, etc. It supports payroll and, if hours are billed to customers, helps create customer invoices. They are kept on the bank’s servers, not the company’s, which can be problematic if the bank deletes them after some time. This tape serves as proof of cash sales and supports the recording of sales transactions.

FAQs on Source Documents in Accounting

The person who is an authorised signatory of the bank account from which the check is issued must sign the check. Each check has a unique number that needs to be entered into the accounting software. This is referred to as a credit note in the supplier’s bookkeeping system because it lowers the amount the client owes.

Source documents should be stored in an organized system, either digitally or physically, to ensure easy retrieval and secure storage. Proper storage methods protect the integrity of the documents and facilitate efficient access when needed. Secure storage providers include Dropbox, Google Drive, Microsoft OneDrive, Box.com, and Evernote. Discover their types, roles, and best practices for efficient management and storage. The concept of original materials traces its roots back to ancient cultures, where fundamental record-keeping was indispensable for trade and commerce.