Examples of Source Documents
'Pieces of paper?' Kate asks. 'What kind of paper?'
'Well, Kate,' Mrs. Brown says, 'Source documents are anything that you get during the course of a transaction. It can be receipts from purchases and invoices from sales you made, whether they be sales on account or cash sales; invoices that show you made purchases on an account are also source documents; checks you wrote to pay bills; deposit slips that prove you put a certain amount of money in the bank; or copies of paid bills - they're all source documents.'
Kate looks down at the scattered papers that are all over the counter. She gathers them up and begins to flip through them, pulling a few sheets out. 'Okay,' she says, 'So I have receipts where I paid cash for merchandise that I bought last week. These are source documents, right?'
'Yes, they are,' Mrs. Brown says.
Kate pulls another few pieces of paper out of the stack. 'And, I have copies of the bills that I paid this month. Will these work as source documents?'
'As long as it shows proof of a financial transaction, then yes, it is a source document,' Mrs. Brown says.
'Well, now that I know what I am looking for, I can get you what you need!' Kate says.
Why Source Documents Are Important
'Okay,' Kate says to herself, 'I think that I have it all together. I want to hand-deliver these and find out why they are so important!'
Kate drives herself to Mrs. Brown's office armed with all the source documents she can find. She walks in and hands the items to Mrs. Brown.
'Thank you, Kate. That was pretty quick. I'm glad you brought these. I really need to get your books done.'
'I was wondering, Mrs. Brown, can you explain to me why these are so important?' Kate asks.
'I sure will, Kate,' Mrs. Brown replies. 'Like I told you on the phone, source documents are proof that a financial transaction has occurred. Examining the source document is the first step in the accounting cycle. The source documents tell what kind of transaction occurred, what accounts are affected, and the dollar amount of the transaction. All this has to be decided before the journal entry is made. A journal entry is the recording of the date, accounts affected, and amount of a transaction into an accounting journal. An accounting journal is a record of accounting transactions in chronological order. So you see, without source documents, I couldn't even begin to do an accurate job for you.'
Lesson Summary
'So, let me get this straight,' Kate says. 'Source documents can be receipts, copies of checks, copies of invoices, deposit slips, or anything else that proves that a transaction occurred. Accountants need source documents so that they can accurately document the financial transactions that occurred during an accounting period. Examining source documents is the first step in the accounting cycle and happens before a journal entry is made. A journal entry is where you record the date, accounts affected, and amount of a transaction in an accounting journal, which is a record of transactions in chronological order. Am I correct?'
'You sure are, Kate. Isn't it amazing how important a simple piece of paper can be in the accounting industry?' Mrs. Brown asks.
Learning Outcomes
Once you've finished with this lesson, you will have the ability to:
- Define source documents, journal entry and accounting journal
- Identify examples of source documents
- Explain why source documents are important in accounting
