Source Documents and its uses :-
• Accounting is the systematic recording of the financial transactions in monetary
terms.
• Every time a business makes a transaction in the real world a paper trail is created.
• The paper trail is known as /are a source document(s).
• A source document is the orginal document that shows that a transaction took
place.
• For eg :- Evidence that a cash sale took place might be in form of a cash receipt
copy in the receipts book.
Source documents and its uses … (Contd..)
• If a transaction involves outside parties i.e people who ar e not part of the entity, both
the entity and the outside party obtain copies of the transaction. For eg:- If business
purchases goods for resale on credit from a trader like Abhi , the business obtains an
invoice showing the amount of goods purchased and Abhi retains a copy of the invoice to
record a purchase transaction in the books of accounts.
• Later if business makes payment towards the purchase they will receive a receipt as a
proof of payment which they can also use as an EVIDENCE in the books to record the
transaction.
Source documents and its uses …(contd..)
Original documents usually show the following information:-
Date of the transaction
Amount involved
People/Business/ parties involved in the transaction.
Reference number eg :- invoice or receipt number that ca nbe used to trace the
transaction.
Description or summary details of the transaction eg :- sales or deposit.
Source documents should be kept and retained for future reference and for audit
purpose wherein the auditors can tell that the accounts of business show a true and
fair value.
Common Source documents include :- Invoices , Credit note, Debit note,
Cheque , Voucher, Receipt, Bank statements or statements of accounts.
Importance and Use of Source
documents
Acts as a proof to show that the transaction recorded in the books of accounts
has occurred.
Show the amount, date, details and nature of transactions as well as people/
business/ parties involved.
Invoices
Used in credit transactions eg :- Credit sales (when they are issued to customers
and business retains its own copy) and credit purchases.
Used to record credit sales, credit purchases, purchase of assets on credit and
sales of assets on credit.
Credit sales , invoices are recorded in sales journal, Credit purchases are recorded
in purchase journal and selling and buying of assets is recorded in the General
Journal.
In all these cases an invoice acts as the source document.
Credit Note
• Is Issued by a supplier to the customer when thet have overcharged the customer or
when
• The customer has returned goods to the supplier
• Eg:- When business returns the damaged goods to the supplier (purchase
returns/return outwards) the supplier issues a credit note to the business and
transaction is recorded in the Purchase Journal.
• If a consumer is for some reason dissatisfied with the goods sold to him by the
business and returns them.
The business will issue him/her with a credit note and the transaction will be recorded
in the
Sales return journal.
• If a customer was overcharged then he/she is issued with a credit note and the
transaction will be recorded in the sales journal.
• In all these cases the Credit note acts as a source document.
Debit Note
Is issued by the supplier when they undercharged a customer.
If the business was undercharged they will receive a debit note from the supplier and they
will use this to record the transaction in the Purchase Journal.
If the business undercharged a customer they will issue a debit order to that customer and
make adjustment in the sales journal
Cheque
• Cheques and cheque counterfoils are used to record all bank transactions in the
sales journal,purchase journal, general and cash book.
• These will typically include payments to suppliers and other creditors,receipts
from customers and other receivables /debtors , cancelled cheques and bounced
checks.
Vouchers
At times vouchers are used instead of cash to make purchases for eg fuel purchases.
In such instances they are used in much the same way as cheques as evidence of payment
for goods and services and recorded in the proper original book as such.
For eg:- Sale to a customer will be recorded in cash book as sale.
They are also used by cutomers to get deals and special discounts in which case they are
recorded in the cash book in discount allowed and discount received columns.
Receipts
• Are used as evidence of cash payments and cash receipts .
• If a general cash payment is made the transaction is recorded in the cash book and
general
• In the event of cash sale the transaction is also recorded in cash book and general
ledger.
• If a customer settles their account using cash the transaction is recorded in cash book
and sales ledger.
• If the business pays amount owed to their suppliers using cash the transaction is
recorded in the Cash book and purchases ledger.
• If however it is a cash purchase the amount are recorded in the General and Cash book.
Bank Statements
Are issued by bank to the business.
They are used to update the cash book and to create a Bank
Reconcilliation Statement.
Statement of Accounts
Are issued to the business by their suppliers and other creditors.
They are used to update the Purchase Journal and to do a Purchase Ledger
Reconciliation.
