Table of Contents
- What is a Source Document?
- Purpose of Source Documents
- Types of Source Documents in Accounting
- Examples of Source Documents
- Why are Source Documents Important?
- Lesson Summary
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.
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:
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.
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 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.
External source documents are generated outside of the business. Purchase receipts paid invoices, and banking documents such as statements, deposit receipts, and cancelled checks are all types of external source documents. External source documents serve as verification of the company's financial transactions with other entities and are often used to support income and expense information on the company's tax filings.
There are countless types of source documents in accounting. Some common examples include:
Some other types of source documents include payroll records, accounting notes and reports, leases, financial contracts, and credit memos.
Source documents are a very important part of accurate business accounting. They serve as proof of the details of a transaction, and they are part of the key first step in the accounting process, so keeping accurate records of their contents is vital. Source documents may be required if the business is ever audited or if there is ever a dispute over a transaction or financial activity, so source documents are often kept and stored for several years in the event an issue arises in the future. It is important to note that source documents must be formal. Personal notes and record-keeping are not considered source documents as they can neither prove that a transaction has occurred nor prove the details of a transaction.
Source documents are a key part of business accounting. A source document is a piece of paper that documents and proves that a transaction has occurred. The examination and verification of source documents is the first step in the accounting cycle. They provide the information needed to complete journal entries that are recorded in the accounting journal.
Source documents can either be internal or external, depending on their origination. Internal source documents originate within the company and include documents such as accounting reports, payroll data, and billed invoices. External source documents originate outside of the company. These include documents such as sales receipts, paid invoices, and bank records. Source documents can be important in the event of audits or transaction disputes and cannot simply be personal handwritten notes.
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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.
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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