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Source Documents

Shawn Custer, Rebekiah Hill
  • Author
    Shawn Custer

    Shawn Custer has taught college-level English, composition, and literature for over six years. She has a Master’s in English and Creative Writing from Southern New Hampshire University and a Bachelor's in English from Thomas Edison State University.

  • Instructor
    Rebekiah Hill

    Rebekiah has taught college accounting and has a master's in both management and business.

Learn the definition of a source document and understand its purpose and why source documents are important. Discover various examples of source documents. Updated: 06/17/2022

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What is a Source Document?

In accounting, the definition of a source document is a piece of paper that proves that a transaction has occurred. Source documents contain pertinent information about the transaction, such as the date, the dollar amounts, the involved parties, and the purpose of the transaction. These documents serve as proof not only that the transaction has occurred but also of the details of the transaction. With advances in technology, source documents now also include electronic records, such as an emailed receipt or an electronic bank statement.

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Purpose of Source Documents

Accounting documents and journals are used to maintain records of a company's financial standing. Not only do they show the current balances for the company's accounts, but they can also be used to show patterns of income and spending and provide a picture of the overall health of a company.

An accounting journal entry includes several important details of the transaction, such as the date and description of the transaction and which accounts will be debited and/or credited, depending on the nature of the transaction. If the journal entry is incorrect, it can make the entire accounting record inaccurate and cause tremendous problems for the business going forward. The examination of source documents, therefore, is a critical first step to keeping accurate accounting records.

Source documents serve several purposes in accounting. First, original source documents serve as evidence that a business transaction did occur. They also provide the details of the transaction, including dollar amounts, the date of the transaction, the parties involved, and information as to the purpose of the transaction. Accountants use source documents to complete accounting journal entries about the transaction.

There are eight steps in what is known as the accounting cycleor, the basic steps to thorough bookkeeping. These steps are:

  • Identifying the transaction- this includes examining the source documents to verify the details of the transaction
  • Recording the transaction- once source documents are verified, the details of the transaction are entered into the accounting journal
  • Posting- recording the transaction in the company's general ledger
  • Calculating the trial balance- this serves as a mathematical check of the records
  • Creating a worksheet- the worksheet is used to check that the records balance and to look for discrepancies
  • Adjusting journal entries- this is as needed, based on the worksheet results
  • Creating financial statements- these statements include balance sheets, income statements, and cash flow statements
  • Closing the books- a statement is generated that closes the records for the accounting cycle

In addition to using source documents to begin the accounting cycle and journal entry process, source documents can also serve as evidence should there ever be a question or discrepancy regarding a particular transaction.

Types of Source Documents in Accounting

There are many different types of business source documents. These include bank statements, deposit slips, purchase orders, sales receipts, and packing slips. Source documents are classified as internal or external, depending on where they originate.

Internal Source Documents

Internal source documents are generated within the business. These include accounting reports, invoices, and sales receipts where the company sells products. Internal source documents can be used to keep records and track business activity over time.

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Frequently Asked Questions

How many types of source documents are there?

There are many kinds of source documents, including payroll documents, sales receipts, invoices, purchase orders, and banking documents. Most can be classified as either internal or external documents, depending on whether they were generated within or outside a company.

What are source documents and why are they important?

Source documents are the original records of business transactions. They are important because they prove, first, that a transaction occurred, and they also serve as evidence of the details of that transaction should there ever be a discrepancy or dispute.

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