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Stamford University Bangladesh

Assignment On
Accounting Information System
Topic: Source documents used in business

Assistant professor Department of Business Administration Stamford University Bangladesh

Prepared for Md. Mamunuir Rashid

Prepared by
Sajib Chakraborty ID: BBA 04012963 Batch: 40c Submission Date: 04-08-2012

Source documents
A source document in a manual accounting system is a paper form, docket or note which records details of a transaction and provides evidence that the transaction took place. Source documents serve two purposes:

they form inputs into the accounting system so that the transactions they record can be entered into the first of the accounting records - the journals they assist internal control of the resources of the business - making sure that there is documentary evidence to support the purchase or sale of items and the receipt and payment of money (that is, it makes it more difficult for people to misappropriate or steal cash or other items).

What source documents would a small service business use?


Common source documents used in small service businesses include tax invoices*, receipts*, cheque butts, ATM receipts, EFTPOS receipts and memoranda. *Some businesses use one form for tax invoices and receipts - they have a space on the tax invoice to record payments from the client.

If the client doesn't pay for the service at the time the invoice is prepared, this section is left blank and the form is an invoice. If the client pays for the service at the time the invoice is prepared then this is recorded in the payment section and the form acts as a receipt as well.

Tax invoices (copy)


Issued by the business to credit clients - the invoice is the bill for what is owed and is given to the client, e.g. hairdresser issues tax invoice to client who is not paying straight away to charge them for their cut/color (and keeps a copy for the hairdressing business's records).

Tax invoices (original)


Received by business when purchasing items on credit (not paying for them on the spot), eg hairdresser receives tax invoice from supplier of hair dryers bought on credit.

Receipts
Issued by the business as evidence that money was received from a client, e.g. gives client a receipt when he/she pays for haircut (this may be a tax invoice/receipt).

Cheque butts
Kept by the business (and the cheque given to person being paid) as evidence that a payment has been made, e.g. hairdresser keeps cheque butt and sends cheque to landlord to pay rent for shop.

ATM receipts
Received from the ATM machine as evidence that money was taken from the business bank account, e.g. hairdresser receives ATM receipt when taking cash from the ATM.

EFTPOS receipts
Received from a supplier when something is purchased from them, e.g. hairdresser receives EFTPOS receipt when paying for new hair products (the supplier will attach a copy of their tax invoice to the EFTPOS receipt).

Memorandum
Note explaining a transaction if none of the above applies, e.g. the hairdresser writes a short note to explain that she/he is contributing their personal computer to the business or to indicate that funds have been transferred electronically.

Example
The following is a list of the transaction types you will need to know how to record. Beside each is written the source document you would use to enter the transaction into the accounting system. Tom's Plumbing Transaction type Owner contributes capital (in cash) Tom contributes cash to start up the business (his capital). Owner contributes capital (non-cash asset) Tom contributes his own car for the business to use. Source document to provide evidence of the transaction Receipt made out to Tom or memorandum Memorandum

Business receives a loan Receipt made out to Tom or Tom's Plumbing gets a business loan from memorandum the bank. Business buys asset for cash Tom's Plumbing buys an asset, a trailer, and pays cash (ie pays straight away). Business buys asset on credit Tom's Plumbing buys another asset on credit (ie payment will be made later). Business pays expenses Tom's Plumbing pays for a business expense, an advertisement in the local paper, and pays cash (i.e. pays on the spot). Business performs a service and receives fees in cash Tom's Plumbing provides a plumbing service to a customer who pays straight away. Business performs a service but is not paid at the time Cheque butt (cheque given to supplier of trailer who knows Tom and will accept his business' cheque) Tax invoice (original) received from supplier of the asset. EFTPOS receipt (because local paper does not accept cheques) The local paper would also issue a tax invoice which it would attach to Tom's EFTPOS receipt. Receipt or Invoice/receipt

Invoice is given to customer and Tom retains a copy

Tom's Plumbing provides a plumbing service to a customer who does not pay straight away. Owner takes drawings Tom takes money from the ATM to pay for his personal living expenses. Business pays a creditor Tom's Plumbing pays what it owes to a creditor. ATM receipt

EFTPOS receipt or cheque butt

Business makes a loan repayment Cheque butt or Memorandum (if payment Tom's Plumbing makes a loan repayment. automatically deducted from the business's bank account) Business receives a payment from Receipt debtor Tom's Plumbing receives payment from a credit customer who is paying what they owe.

Summary
Cash received by business Cash paid by business Business giving credit to client Business receiving credit from supplier Copy of business's receipt (original given to client) Cheque butt, ATM or EFTPOS receipts Copy of business's invoice (original given to client) Supplier's original invoice

A memorandum is used if none of the above is possible.