It is necessary to have business transactions recorded for reference purposes, and at every financial transaction of a company, a paper trail is generated. In accounting, the paper trail generated is called a “source document,” and it is the first document that exists in connection to transactions.
Source documents in accounting serve as evidence when auditors need to review the financial statements of a company to ascertain if there was indeed a business transaction. A source document is prepared for each transaction that occurs in business and could come in the form of receipts generated after-sales, invoices sent to suppliers, or employee work hours recorded on a timesheet.
Note also that source documents in business often contain the description of a business transaction, the date of the transaction, the specific value of the transaction, and a signature or stamp to show authorization and approval. However, a source document doesn’t necessarily have to be a paper document as it can also be in electronic form.
There are various types of source documents used in accounting, some of which are:
- Cash memo
- Deposit slip
- Cheque (Check)
- Credit and Debit notes
- Payment confirmation
10 Source Documents Types And Their Meaning
The different types of source documents in financial accounting are explained below:
- Invoices: These are the primary source documents for sales and other types of revenue. The invoice, which usually contains the details of the transactions like the list of goods or services provided, the quantity, the rate, and the amount, is prepared by the company and the main copy is sent to the purchaser, while the supplier keeps a copy as a source document of evidence. There are two types of invoices: sales invoices (written by the seller to the buyer) and purchase invoices (received by the buyer).
- Receipt: This is a source document proving that the customer paid for a business transaction. The receipts are evidence of payments made by cash or with the use of debit or credit cards. Receipts can be on paper or digital.
- Cash Memo: This serves as a source document for recording cash sales and cash purchases. A company receives a cash memo when it makes purchases with cash, and when a company sells, it gives the cash memo and has it recorded in the source document sales journal.
- Deposit Slip: A deposit slip is a common type of source document that proves money has been deposited into a bank account. When a customer deposits money in the bank, he fills up a form that has details of the transaction, and the bank clerk stamps the slip’s counterfoil and returns it to the depositor.
- Cheque (Check): It is a banknote that shows the amount being withdrawn from a bank and requires the signature of the owner of the account before it can become valid, and the space created for the payee shouldn’t be left blank to avoid theft. There is a special number on each check that should be recorded in the bookkeeping system.
- Credit and Debit Notes: The credit note source documents are also referred to as additional sales invoice. It shows the extra amount of money that needs to be added to the initial amount indicated in the sales invoice. The debit note is a source document prepared by the seller and sent to the buyer to rectify an overcharge case in the sales invoice.
- Quote: In business, this type of source document may be obtained by the buyer from various sellers in order to compare and contrast the prices of each supplier and choose the cheapest.
- Statements: A common type of source document is the bank statement which shows the monthly transactions in a bank. A statement of account also reflects the amount of money owed by businesses.
- Payment Confirmation: A source document can be derived from online or other electronic payments that have been confirmed by the receiver or supplier. It is a perfect example of digital source documents evidencing credit transactions and is gradually becoming popular in businesses.
- Vouchers: This source document is created with the intention of recording business transactions in the books of accounts. The documents are further analyzed and a conclusion on which account is to be credited and which is to be debited is reached. The document on which the conclusion is written is called an accounting voucher, and it is divided into two, namely,
✓ Cash voucher (credit and debit vouchers)
✓ Non-cash voucher
Uses Of Source Documents
Source documents used in financial accounting have several uses. They include, but are not limited to:
- Acts as a source of data that is transferred to the original journal entries and then posted in the appropriate ledger accounts.
- Serves as proof that a business transaction occurred.
- It is useful for correcting errors while posting the ledger accounts.
- Source documents make auditing both easier and faster.
- Having source documents available encourages transparency and accountability.
Source documents are of great importance to the bookkeeping and accounting process as they make available evidence of transactions and serve as backups for accounting journals and general ledgers. Source documents in accounting give all the basic details of transactions, thereby making referencing easy.
The various types of source documents are highlighted above and I hope you find some value in this post.