On a practical level, the original invoices and credit notes are of course sent to the customer. You may be working from a copy, or in some cases simply from a computer listing transactions within the accounting system. Similarly, the Canadian Revenue Agency (CRA) accepts scanned documents as long as the records are produced and retained in paper format or stored in an electronically accessible and readable format. A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting system. In most circumstances, photocopies of source documents are legally acceptable.
You should also note that the seller may send out monthly statements of the amount owing, or reminders for overdue invoices; these should not be confused with invoices, even though they may look similar. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Cash Memo – Cash memo is a document prepared by the seller when goods are sold in cash.
Originals vs. Photocopies
A purchase order is an instruction from one company to another company to buy a certain quantity of goods at a specific price. A dispatch note is a document that accompanies the shipment of the goods, detailing what was sent and confirming that it matches the purchase order. A business that sells mainly for cash may still prepare invoices or receipts, which are very similar to invoices.
- It consists of the date, amount, and other relevant information of a particular transaction.
- This is often done using a payment slip that can be torn off the invoice.
- For evidentiary purposes, electronic images of source documents are generally acceptable, though paper-based documentation may still be required in some cases.
- A purchase order is an instruction from one company to another company to buy a certain quantity of goods at a specific price.
A Bank Reconciliation Statement includes all transactions that have affected an account, dates of the transactions, the current balance, and any discrepancies. A source document is one record used to create accounting transaction records (e.G., Invoices). It consists of the date, amount, and other relevant information of a particular https://www.quick-bookkeeping.net/how-to-write-a-late-payment-email/ transaction. 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. Nowadays, these documents do not necessarily need to be a physical hard copy – they may be in a traceable electronic form.
What are Source Documents in Accounting?
A Credit Note is a document that records the fact that an invoice has been received, resulting in an increase in the amount owed to the supplier. For most retail businesses, however, the source document that accountants will work from is the till roll. This shows the total amount taken in for goods and services, whether by cash, check, or card.
External source documents serve as verification of the company’s financial transactions with other entities and are often used to support income and expense information on the company’s tax filings. Every time a business is involved in a financial transaction, a paper trail is generated. Whether checks are written to be paid out, sales are made to generate receipts, billing invoices are sent by suppliers, or work hours are recorded on an employee’s timesheet – all the respective documents are source documents. Source documents can either be internal or external, depending on their origination. Internal source documents originate within the company and include documents such as accounting reports, payroll data, and billed invoices. These include documents such as sales receipts, paid invoices, and bank records.
In addition, source documents are also essential in the auditing process. When companies undergo an audit, the auditor’s access to a clear and accessible paper trail of all transactions enhances the overall legitimacy and independence of the audit. 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.
Petty Cash Voucher – It is used for petty cash expenses such as stamps, postage and handling, stationery, carriage, etc.
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It contains all details of the transaction such as quantity, amount, selling price, etc. Source documents arrive in a company through many different departments, mostly via sales and purchase departments. A source document describes all the basic facts of the transaction, such as the amount of the transaction, to whom the transaction was made, the purpose of the transaction, and the transaction date. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year. The customer should have a completed check stub (often called a counterfoil) in the checkbook.
You would keep source documents for your business just like you keep receipts for tax-deductible items for your taxes. If your taxes are audited, the source documents provide the proof that you’ve made those purchases. The same holds for your business, but in business, you keep original documents for every financial transaction, not just charitable donations. In addition to using source documents to begin the accounting cycle advanced roadmaps guide and journal entry process, source documents can also serve as evidence should there ever be a question or discrepancy regarding a particular transaction. The final category of source documents used to create accounting records consists of banking documents. 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.
At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. A similar adjustment will have to be made in the books of Maiden to reflect the fact that they still owe Acme the price of the CDs. Third, Acme sends an invoice to Maiden for the agreed price of the 5,000 CDs. Take your learning and productivity to the next level with our Premium Templates. We faced problems while connecting to the server or receiving data from the server.
The key source document relating to credit sales made by the business is the invoice. Invoice/Bill – It is an evidence prepared by the seller to document credit sales. It has all details about the credit sale such as the purchaser, date, price, quantity, etc. Many businesses and government agencies also use the IRS standard of complete, legible, and accurate reproductions of the original documents. Fifth and finally (and possibly after Acme has had to issue a statement of the account, see above), Maiden sends Acme a check for the amount owed. This is often done using a payment slip that can be torn off the invoice.
