Meaning Contents and Specimen

A paper trail is created every time a business engages in a financial transaction All source documents are created when checks are written to be paid out, sales are performed to generate receipts, billing invoices are provided by suppliers, or work hours are documented on an employee’s timesheet.

Source Document

The physical basis on which business transactions are recorded is known as source documents. When auditors later analyse a company’s financial statements and need to verify that transactions have occurred, source papers are often kept as proof.  They normally include a description of a commercial transaction, the transaction’s date, the amount of money involved, and an approving signature. Many source documents are also stamped to show that they have been approved, or to write down the current date or the accounts that will be used to record the underlying transaction. It is not necessary to use a paper document as a source document. It can also be digital, such as an electronic record of an employee’s working hours input into a company’s timekeeping system via a smartphone.

Control over Source Document

To limit the risk of source documents not being properly recorded in an accounting system, a variety of controls can be utilised. Pre-numbering documents is one of the most used controls, as it makes it easier to find missing documents. Another check is to compare account balances to supporting source papers to see if any documents have not being recorded or if any transactions in the accounts appear to be missing supporting source documents.

How Long to Retain Source Document

Various regulations require that some source documents be kept for a certain period of time. If merely to give evidence in the event of a lawsuit or to provide better customer service, it may be prudent to save these records regardless of legislation. For these reasons, a corporation should implement a document destruction policy that strictly regulates the shredding or other forms of destruction of source documents until a set period of time has passed.

Examples of Source Documents

The following are some examples of source documents and the accompanying business transactions that appear in the financial records.

Bank Statement

A bank statement comprises a number of adjustments to a company’s cash on hand balance in the account that the company should refer to in order to align its records with the bank’s.

Cash Register Tape

A cash register tape can be used as proof of cash sales, proving that a sale transaction was recorded.

Credit Card Receipt

A credit card receipt can be used to prove that funds from petty cash were disbursed.

Sales Order

When combined with a bill of lading and/or packing list, a sales order can be used to invoice a customer, resulting in a sale transaction.

Supplier Invoice

A supplier invoice is a supporting document for making a cash, check, or electronic payment to a vendor. An expense, inventory item, or fixed asset can all be recorded on a supplier invoice.

Time Card

The issuance of a check or electronic payment to an employee is supported by a time card. It also facilitates the production of client invoices if employee hours are billed to customers. A company, for example, is in the consulting business. It collects hours-worked data from employee timesheets, which is subsequently incorporated into client invoices, resulting in the establishment of a sale and accounts receivable transaction. As a result, the timesheet is the source document for a sale transaction in this case.

Importance of Source Documents

First and foremost, source documents are critical to the bookkeeping and accounting process because they serve as physical proof that a financial transaction took place. These documents do not have to be physical hard copies anymore; they might be in a traceable electronic format.

Furthermore, source documents are critical in the auditing process. When a company is audited, the auditor’s ability to see a clear and accessible paper record of all transactions adds to the audits overall validity and impartiality. Auditors require complete access to all records in order to verify the accuracy of the company’s balances in individual accounts. Overall, all source documents should be retained and stored for future reference to make a business work more smoothly and transparently.

Common Types of Source Documents

In Simplest Form a source document generally contains the following information:

• The Date of the transaction
• The Total amount of the Transaction
• A description of the transaction
• One or More authorizing Signatures 

The Most Common Documents are:

• Cheques
• Invoices 
• Receipts
• Credit Memos
• Employee time Cards
• Deposit Slips
• Purchase orders

Storing Your Documents

As soon as possible after the transaction, the information from the source document should be documented in the relevant accounting journal. All source papers should be stored away in some system after recording so that they can be retrieved as needed. In some cases, it may be necessary to provide the chain of custody in order to prove that the source document in question was still in your possession.

Conclusion

The physical basis on which business transactions are recorded is known as source documents. When auditors later analyse a company’s financial statements and need to verify that transactions have occurred, source papers are often kept as proof. To limit the risk of source documents not being properly recorded in an accounting system, a variety of controls can be utilised. Pre-numbering documents is one of the most used controls, as it makes it easier to find missing documents. As soon as possible after the transaction, the information from the source document should be documented in the relevant accounting journal.