TOPIC: SOURCE DOCUMENTS

SUBTOPIC: Source documents

Objectives

By the end of the subtopic, learners should be able to:

 Define source documents.

 List the source documents.
 Discuss the uses and origins of source documents.
 Relate the source documents to the subsidiary books and the type
of transaction.

Source documents

 Source documents are written records that provide information that

is needed in recording a transaction in the subsidiary books.
 A source document provides a summary of a transaction and
contains the following details; description of goods, date of the
transaction, the value of a transaction, an authorising signature,
addresses and contact numbers of the supplier and customer.
 In accounting the most commonly used source documents include;
receipts, invoices, debit notes and credit notes, cheques, vouchers,
bank statements and statements of account.

1. The Receipt
 Receipt is the document used to prove that cash was paid or
received.
 A receipt is issued to a customer by the supplier as an
acknowledgement of cash received.
 Fig 4.1 below shows the flow of a transaction from the time cash is
received until the time the transaction is entered in the subsidiary
book.
Fig 4.1 Flow of a cash transaction

 The receipt is used to enter transactions in the cash book either as a

cash payment in the books of the customer or cash receipt in the
books of the supplier.
 The cash column is used to record all transactions made by cash
and this is usually done using cash till receipts.
Below is an example of a receipt.

MH402 Date...16 ….May… 2016…..

Tayana Investments
8967 104 Avenue
Nelson Mandela Avenue; Harare
RECEIPT

Received from : Damus Limited

The sum of : US five thousand dollars only. ($5 000)
By : Cash
Remarks : 100 School desks and 300 chairs

Signed : AMakwara

Fig 4.2 Receipt

Contents of a receipt

A receipt contains the following details;

1. Receipt number.
2. The identities of the persons involved in the transaction.
3. Date of the transaction.
4. Description of the goods or services sold.
5. Quantity of goods.
6. Address of the company.

Significance of a receipt

 A receipt shows proof of payment made in cash or cash received.

 It identifies the goods paid for or the actual amount received from
accounts receivables.
  It provides the date and time of transaction. The date and time
plays a significant role for showing the period on which the
transaction occurred.
 Receipt provides evidence of cash paid or received to finalise the
sale.
 Used to acknowledge money received.

2. Cheque

 It is an instrument ordering a bank to pay a certain amount of

money to the person stated on the cheque or bearer.
 Fig 4.3 below shows an example of a cheque and cheque
counterfoil.

Cheque
counterfoil Cheque

Fig 4.3 cheque and cheque counterfoil

 A cheque counterfoil is a stub that remains in the cheque book to

help the cheque book holder to keep track of payments made.
 Only current account holders have cheque books and are the ones
who issue cheques.
  A cheque can be used in place of a cash payment and a receipt is
issued when a cheque payment is made.
 All cheque receipts are recorded in the bank column on the debit
side of the cash book whilst all cheque payments are recorded in
the bank column on the credit side of the cash book.
 Fig 4.4 below shows the flow of a transaction from the time a
cheque is received until the time the transaction is entered in the
subsidiary book (cash book).

Fig 4.4 Flow of a cheque transaction

Contents of a cheque
 Date the cheque is issued.
 Name of the person being paid also known as the payee.
 Amount being paid in words and figures.
 Name of the current account holder also known as the drawer.
  Name, account number and cheque number of the drawer.
 Bank name where the account is held.
 Signature of the account holder.

Advantages of using a cheque

 Less risky as one does not need to carry cash around.
 Safe and convenient mode of payment.

2. Voucher

 A voucher is an internal, written authorisation document, which is

exchangeable for cash.
 It is a document, which describes the purpose for payment as
supporting evidence for having used cash from the till, or petty
cash fund.
 The information contained in the petty cash voucher is used to
record transactions in the Petty cash book.
 This is the authority of having used cash.
 It can be spent only for specific reasons and for specific goods,
for example food and travel vouchers.
 Fig 4.5 below shows an example of a voucher.
 Fig 4.5 Petty cash voucher

Uses of a voucher

 A voucher is used as substantiating evidence to a claimed

transaction.
 It is also used as a receipt for expenditure of money.

3. The Invoice
 This is a document issued to a customer by the business for the
goods sold on credit.
 It provides details of the goods supplied.
 Fig 4.6 below is an example of an invoice.

INVOICE Panashe Holdings

14 Lundi Drive
Masasa, Harare
(04) 236475

TENDA WHOLESALERS

Taya Investments Invoice Number 0843

Stand 44 Magaba Complex, Harare
(04) 556733
Sales Tax 5%
Invoice Date 15 June 2016
Description Quantity Unit Price Total Amount
Roofing Timber 50 $4.00 $200.00

Soko Cement 25 $10.00 $250.00

Invoice Total $450.00

Terms: 30 Days From Invoice Date
Fig 4.6 Invoice

 There are two types on invoices namely; the purchases invoice and
the sales invoice.

a) Purchases invoice

The Purchases invoice is used to draw up the purchases journal or

purchases day book. It is received from the supplier for the goods in trade
bought on credit. The purchases invoice contains the following
information;

 Name of the supplier.

 Name of the customer.
 Date of purchase.
 Quantities purchased and product name.
 Price per item and total cost.
 Payment terms.

b) Sales invoice

The Sale invoice is used to draw up the Sales Journal or Sales day book. It
is issued by the business or supplier to its customers in the event that
goods in trade are sold on a credit. The sales invoice contains;

 Name of the supplier.

 Name of the customer.
 Date of sale.
 Quantities sold and product name.
 Price per item and total cost.
 Payment terms.

4. Debit note
In the event that a customer is not satisfied with the goods supplied,
goods maybe returned to the supplier. The returned goods are
accompanied by the document known as a Debit note.

 A debit note is a document sent by a customer to the supplier for

goods returned or claiming an allowance for an overcharge made by
the supplier.
 Suppliers can also send a debit note to the customer to correct an
undercharge, for example, when excess goods are supplied in error
to the customer than ordered.
 A debit note is usually printed in black.
 Fig 4.7 below shows an example of a debit note.

The details contained in a debit note include:

 Name of customer sending the debit note.
 Invoice number (the invoice number on the purchases invoice).
 Name of the supplier to whom the goods were returned.
 Reason for returning the goods.
 The description of the goods returned (quantity and price).

DEBIT NOTE NUMBER: SD43

MOYO CONSTRUCTIONS

Moyo Constructions
INVOICE NUMBER 34
4 Way Drive, Harare

Date: 20 June 2016

To: Taya Investments

44 Magaba Complex, Harare
COMMENTS OR SPECIAL INSTRUCTION: Expired goods

QUANTITY DESCRIPTION UNIT TOTAL

PRICE
 10 SOKO CEMENT $12.00 $120.00

$120.00

AUTHORISED_______G MATUTE_________

Fig 4.7 Debit note

5. Credit note

 It is a document sent to a customer by the supplier who would have

returned goods as acknowledgement and acceptance of the goods
returned.
 It provides details of the returned goods, such as, the description of
the returned goods and the value of goods or allowances credited to
the customer's account.
 A credit note can be used to cancel the original sale of goods or to
correct an overcharge on sales, thereby reducing the amount owed
by the account receivable (customer).
 Credit notes are usually printed in red.
 Fig 4.8 below shows an example of a credit note.

CREDIT NOTE NUMBER 325 523

TAYA INVESTMENTS
Taya Investments
44 Magaba Complex
Harare Date: 22 June 2016

To: Moyo Constructions

4 Way Drive, Harare

QUANTITY DESCRIPTION UNIT PRICE $ TOTAL AMOUNT$

10 SOKO CEMENT 12.00 120.00

120.00
Reason for credit: Expired goods
Original Invoice N0 34 Dated 22 June 2016

Fig 4.8 Credit note.

6. Statement of account
 The supplier issues a statement to the customer at the end of each
month to show the transactions for the period.
 It is shows the amount owed or paid in advance by the buyer and
any outstanding amounts that the buyer should have paid at the
end of the previous month or months.

Contents of the statement of account

The statement of account shows the following:

 Invoices issued by a business.

 Total sales for the month.
 Total returns for the month.
 Date for each transaction.
 Names of the supplier and the customer.
 Addresses of both the supplier and the customer.
 Cash and cheques received from the customer.
 Any cash discount allowed to customer.
 Amount due and its due date.
 Terms of payments.

7. Bank statement
 It is a summary of financial transactions, which occurred over a
given period on a bank account held by a business with a financial
institution.
 A bank statement is sent to a customer at regular dates so that the
customer is fully aware of their transactions with the bank.

Significance of bank statement

 Used in clarifying the transaction details of a particular bank

account.
 Used in case of any misunderstanding between bank and client.
  Used to judge an individual or a company’s worth or standing as
well as for purpose of business.
 Bank statement used to identify lost cheques, deposits and wire
transactions.
 Enables one to detect and query excess bank charges.
 Detect and prevent embezzlement of funds from within the
company.
 Identify duplicate charges, unauthorized purchases, and incorrect
posting of amounts.
 Determine true liability even before transactions are posted.
 Account for online purchases or purchases with missing receipts

Subsidiary books and their source documents

Source Document Subsidiary Book

Receipt Cash book

Sales invoice Sales Journal

Purchases invoice Purchases Journal

Debit note sent and credit note received Purchases Returns Journal

Credit note received and debit note sent Sales Returns Journal

Voucher Petty cash book

Cheque Cash book