SOURCE DOCUMENTS

Introduction
 Source documents are the physical basis upon which business transactions are
recorded. They usually contain:
 A description of a business transaction
 The date of the transaction
 A specific amount of money
 There may also be an authorizing signature
 Many source documents are also stamped to indicate an approval, or on which to
write down the current date or the accounts to be used to record the underlying
transaction.
 Source documents are typically retained for use as evidence when auditors later
review a company's financial statements, and need to verify that transactions have, in
fact, occurred.
 A source document does not have to be a paper document. It can also be electronic,
such as an electronic record of the hours worked by an employee, as entered into a
company's timekeeping system through a smart phone.
 Both businesses (or people) involved in the transaction will get a copy of the
accounting source document produced.
 Every document has a few things in common:-
 The transaction date
 The amount
 The name of both businesses/people
 A reference number
 A description of the transaction
Types of Accounting Source Documents
Quotes
The buyer may require a quote from different sellers for the items it wants to buy. The
quotes will be looked at, discussed and a decision made as to which seller to buy the
product from, usually based on who is the cheapest. After that an order will be placed and
the winning supplier will turn the quote into a sales invoice.
Orders
When a business needs to buy an item it will complete an order form. The order form
may be as simple as an A5 sheet from a duplicate book, or it may be a form supplied by
the seller through its on-line website or catalogue. Order forms will not always show the
cost because the buyer may not know the cost when placing an order.
Delivery Dockets
In many cases the vendor will provide a delivery docket with the items being shipped,
posted or delivered. These will often have a description of items being delivered so the
buyer can check it against their order immediately upon it's arrival.
Sales and Purchase Invoices
When an item is sold the seller will issue a document providing all the details of the sale.
If the seller does not expect cash up front before sending the item, they will state on their
invoice their payment terms i.e. the length of time the buyer has until it’s time to pay.
One example is for payment to be received no later than 30th of the month following the
date of invoice.
 The seller enters the document into their system as a sales invoice.
 The buyer will enter it into their system as a purchase invoice.
Credit and Debit Notes
If the buyer decides not to keep an item but return it to the seller, the seller will issue a
special note to show the amount to be refunded.
In the supplier’s bookkeeping system this is called a credit note because it reduces the
amount owed by the customer.
In the customer’s bookkeeping system it is called a debit note because it reduces how
much they owe to the seller.
Payment/Remittance Advices
When a customer pays their bill they will send the supplier a remittance advice which
details the amount and the invoice numbers being paid. It will be posted either with the
check or by itself if payment is made by internet banking.
Remittances can often be found already printed as a small cut out section at the bottom
of, or down the right hand side of, the sales/purchase invoice.

Checks (Cheques)
A check (cheque) is a special bank note that represents the cash that is being paid by the
customer.
The check requires the signature of the person who is an authorized signatory of the bank
account from which the check is issued. Each check has a special number on it which
should be recorded into the bookkeeping system.
The name of the payee should be written on the check. If it is left blank anyone can fill it
in with their own name and deposit the check, thus stealing the money.
Checks should be crossed across the top with the words ‘not negotiable’, and the printed
words ‘or bearer’ crossed off (not all checks have this) so that the check has to be
deposited into the payee’s bank account and not cashed, thus avoiding theft.
Receipts
Once the customer has paid their bill, the supplier can issue a receipt. A receipt is proof
that the payment has been made, which is a good idea when paying cash. Receipts are
usually automatically provided when buying something from a shop.
Deposit Slip
When a customer pays by cheque or cash, the seller will write a bank deposit slip which
will be taken to the bank and presented together with the cheques and cash. The deposit
slip will show the total amount being deposited plus a break-down of the cheque amounts
and cash.
The bank will make a record of the payment so that it shows up on the payor’s bank
statement as a payment received, and on the customer’s bank statement as a payment
made.
Other
Accounting source documents may include loan or lease agreements with attached
payment summaries that show the total amount due plus interest and administration fees.
Filing the Documents
It is vital that all accounting source documents are filed in such a way that they are easy
to retrieve at a later date in case of any queries that might pop up. The most common
method is to file everything in date order, then alphabetical order. Most tax departments
will require you to maintain a good office filing system for at least 5 or 7 years.
Common Terms
 Payee - person or business being paid
 Payer - person making the payment
 Seller - supplier (payee)
 Buyer - purchaser; customer (payor)
Conclusion
Various regulations mandate that some source documents be retained for a number of
years. It also may be prudent to retain these documents irrespective of regulations, if only
to provide evidence in the event of a lawsuit, or to provide better customer service. For
these reasons, a company should adopt a document destruction policy that strictly
controls the shredding or other form of elimination of source documents.