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Types Of Source Documents & Functions

Source documents play a vital role in the Accounting Cycle.

This article looks at what is source document, its importance, good salient features of a
source document, type of source document and its individual use/function.

Definition of a Source Document:


A written document that provides details of a transaction and the evidence that the
transaction has taken place.
All accounting entries are based on information derived from these source documents.

Importance of Source Documents:


Source documents are important to businesses - to provide evidence or proof that a
transaction has occured;
Used as part of a process to record information into the books of original entry and are
required for audit purposes.

Salient features of a good source document:


Date when transaction took place;
Names and addresses of the parties concerned namely the buyer and seller;
Nature of the transaction ie description of the goods or services;
Terms and conditions of the transaction ie trade discount, cash discount, delivery details
and an authorised signature.

Types Of Source Documents And Their Uses/functions:

INVOICE:
To inform buyer of the amount to pay for goods&services supplied by the seller

CREDIT NOTE:
To correct an overcharge in the invoice

DEBIT NOTE:
To correct an undercharge in the invoice

PAYMENT VOUCHER:
Used as evidence of payment to a named party

PETTY CASH VOUCHER:


Used as evidence of payment ( very small sum) to a named party
CHEQUE COUNTERFOIL:
Used as record of amount paid on a particular numbered cheque to the payee

RECEIPT:
To acknowledge money received

BANK STATEMENT:
As summary of monthly transactions of current account holders with the bank.
Different Types of Source Documents Used in Accounting
by Steve McFarlane (26,864 pts ), Edited by Jean Scheid
Published on Jan 9, 2011See More About: Accounting
Business

What follows here is an outline of the different types of source documents as well as a
description of the more popular ones that are used in business today.

Source documents detail the particulars of transactions that include the date, name,
address, terms, and product description among other relevant pieces of information.
Types of source documents include cash receipts, canceled checks, invoices and
timesheets. Source documents may be paper-based business forms or electronic
documents and are used for initial input to the accounting system.

They also serve as evidence that a transaction took place and is part of the audit trail for
as long as those documents are required to be kept by law or policy. Of such, they are a
part of the record keeping process.
Source Documents & Uses

Here is a summary of the different types of sources documents and their uses:

Quotation – This is an agreement, usually written, from a producer to a potential


customer to sell goods or services at a particular price and quantity. The quotation may
include the cost to produce, deliver and finance the purchase.

Purchase Order – This is a written order giving the authorization to purchase goods or
services from a supplier.

Sales Order – A sales order (SO) is an internal document that is generated from a
customer's purchase order. This document is generated to create an audit trail/control to
be used to monitor the entire sales process using the company’s internal numbering
system instead of relying on the customer's purchase order, and the numbering system
that it is based on.

Credit Note – This document is sent by a supplier to a customer to reduce the liability of
the customer. In essence it is a negative invoice that is issued when goods are returned,
when there was an overpayment, or when some other event has occurred that has the
effect of reducing the amount that the customer owes to the supplier.

Debit Note – This document is sent from a customer to a supplier to request a credit note
in respect to an overpayment or return of goods.
Invoice – This document is sent to request payment for monies owed, for goods that were
delivered, or services that were rendered.

Receipt – A written document that confirms that money has been received as a down
payment, account settlement or installment.

Goods Receipt Note – Outlines the list of goods that were received from a supplier.

Goods Dispatch Note – Outlines the list of goods that were sent to a customer; also
known as a packing slip.
Conclusion

Source documents are an important part of the accounting process, and indeed the audit
trail. Not only are they proof that a transaction actually occurred, but they are also use to
input data into the general accounting system. In addition to those we discussed above,
the various types of source documents include any written or electronic proof that a
transaction or business event occurred.
An Overview of Accounting Source Documents
by ciel s cantoria (80,385 pts ), Edited by Linda Richter
Published on Jan 18, 2011See More About: Accounting

An overview about different accounting source documents presents the reasons why they
are considered best references for recording business transactions. Some business
documents serve as internal control tools or are used for tax purposes. Basically, they
provide legal proof for possible disputes.

What are Accounting Source Documents?

Accounting source documents are the primary reference materials used as the bases for
the basic acts of recording and summarizing business transactions. Each organization or
entity may have distinct features and structures of business forms that are readily
identifiable as documents that originate from their end. However, accounting standards
require that these business forms contain information that are basic for recording
purposes.

What are the Basic Characteristics of Accounting Documents?

As reference material for accounting purposes, they should possess the following basic
characteristics, but should not be limited to:
Information pertaining to date, amount, nature or explanation of transaction, and the
name of the issuer. Some other data or control features may be required and depend on
the type of transaction for which purpose the accounting source document was
accomplished.
Traceability; it is important to include information, usually reference codes, that will link
one accounting source document to another as they flow from one accounting process to
the next and from period to period. That way, errors if any can be pinpointed while the
audit examination is provided with audit trails.
A single type of document should have more than one copy, in accordance with the
double-entry system of bookkeeping. In fact the more users involved as parties to a
transaction, the more copies should be available. In addition, all copies should contain
concise, consistent, and legible information.
Source documents may be manually written or encoded or electronically generated.
However, certain regulations require the addition of certain features that would render
them legal documents.
Some source documents contain number sequencing, pre-numbered as a control feature,
and are called accountable forms. Still, not all source documents used for accounting
purposes are pre-numbered or qualify as accountable forms.

A closer look at ten of the most common accounting source documents will present
readers with a clearer perception about the aforementioned characteristics:
1. Official Receipts –

This document is issued in exchange for monies received and as proof that payment was
received or that a monetary condition to pursue a transaction was fulfilled. They may be
manually issued or electronically produced forms. However, aside from the basic
information furnished by this document, the following features should be indicated in
order to qualify the document as a legally recognized “official receipt”:
It contains the Taxpayer Identification Number (TIN) of the issuer.
The machine that produced the receipt or tape has been registered with the tax regulatory
body that regulates the operations of the business.
Official receipts, to be legal, have been printed by a registered printer, who will indicate
in the printed form his license or printer’s authorization number.

Inasmuch as cash receipts are used for taxation purposes, it is important that these
accounting source documents contain features required by the tax regulating body as
acceptable proof of payment.

2. Sales Invoices -

Sales invoices are different from official receipts because they merely acknowledge a
sales transaction and not the receipt of payment.

Nevertheless, certain transactions may result in business disputes in the future, where the
sales invoice becomes necessary as proof or evidence. Hence, the sales invoices should
likewise posses the same features found in official receipts in order to be considered as
legal.

The manner as well as the terms and conditions of payment for the goods are indicated in
this document, whether COD or credit terms.

3. Credit Card Receipts -

A credit card receipt is issued aside from the cash receipt generated by the cash register.

This will be the credit card issuer’s basis for reimbursing the business establishment from
where the cardholder purchased the goods or services on credit.

Monthly credit card statements will also be supported with copies of these receipts, as
supporting documents to the billing statement entries. This type of receipt should also be
legally produced in accordance with the tax regulations.

Find more examples and brief overviews about accounting source documents on the next
page.
An Overview of Accounting Source Documents (Page 2 of 2)
by ciel s cantoria (80,385 pts ), Edited by Linda Richter
Published on Jan 18, 2011See More About: Accounting

go to: page 1

4. Purchase Orders

In a corporate environment, all acquisition and procurements for tangible or intangible


goods will form part of the company’s assets, whether for reselling purposes or as
implements of the business. They should therefore be supported by a duly approved and
pre-numbered purchase order form.

This is to ensure that all major purchases are authorized and within the recognized
budget.

However, less than the minimum amounts of purchases or certain cases of emergency
shall exempt the procurement from the issuance of purchase orders but all in accordance
with the company’s policies.

5. Stock Inventory Release / Issuance Form

These forms are essential as proof that only authorized stocks are taken out of the
warehouse or storage rooms.

They also form part of the accounting source documents used to reconcile any
discrepancy between the stock inventory reports generated by a business machine
equipped with the perpetual inventory feature against the actual physical count of the
goods on hand.
Accounting for stock inventory is very important since inventory costs, included and
calculated under the Cost of Goods Sold account, are major items considered for
determining business performance and profits. Henceforth, all goods coming in or out of
the stockroom should be properly documented on a per-item basis.
6. Delivery Receipts

These documents are the counterpart of the stock inventory release forms, as they serve
as evidence that goods ordered from a supplier were received intact and complete.

They should be received by an authorized representative of a company, usually in the


presence of an internal auditor, to ensure that incomplete deliveries or defective goods are
properly reported or returned. Recording of these deliveries should likewise take note of
unit prices and terms of payment.
Copies of the delivery receipt should also form part of the supporting documents before
any billing payments are prepared.

7. Deposit Slips

Cash, checks, and other cash items recorded as deposits to a bank account are supported
with validated deposit slips in order to qualify as accounting source documents. The bank
teller’s validation, the bank’s “Received" stamp, and the receiving teller’s identification
and initials will make the deposit slip legal as evidence of the deposit transaction.

8. Canceled Checks

These represent the checks issued by the company to serve as payments for authorized
transactions whether for internal or external purposes.

Once presented to the bank for payment either as an over-the-counter encashment or as a


bank clearinghouse item, the amount on the face of the check shall be debited or deducted
against the issuer’s deposit account.

Checks that have been processed and paid become canceled checks that are returned to its
issuer, along with the bank statement for the month that the checks were charged against
the account.

9. Payroll

Payroll forms for salaries and wages that are manually paid-out also serve as accounting
source documents. They contain the complete details about the total salaries paid, the
federal and state taxes withheld, and deductions that form part of the payroll entry.

However, certain information should be supported by the employees' W4 and Payroll


Deductions Authorization forms in order to be considered as a valid basis for accounting
entries.

In addition, the signatures of the employees will serve as proof that wages have been
paid, as well as a basis for threshing out any complaints pertaining to salaries paid.
10. Promissory Notes

Promissory notes are the best accounting source documents to serve as evidence of
obligations or indebtedness. They contain pertinent information about terms, maturity
dates, installment payment schedules, amount of debt, and rates of interests and penalty
charges.

Inasmuch as several transactions will arise out of these particular transactions, accounting
tickets in the form of debit or credit advices are used as accounting source documents for
recording purposes. The control officer reviewing and approving the subsequent
transactions shall observe it as best practice to check the details of the accounting tickets
against the information contained in the promissory note itself.

There are numerous business documents that serve as source documents for accounting
purposes, and the ten business forms that have been discussed above are considered as
essential for basic, legal, internal control and taxation purposes. Nonetheless, these
documents can effectively serve their purposes only if they are properly filed, indexed,
and stored.