Escolar Documentos
Profissional Documentos
Cultura Documentos
CHAPTER 5
SOURCE
DOCUMENTS
KEY TERMS
After completing this chapter, you should be familiar with the
following terms:
source documents
GST
cash receipt
payee
drawee
drawer
not negotiable
cheque butt
invoice
memo.
72
5.1
UNITS 1&2
Every small business requires information on which to base decisions, and the role of
accounting is to provide that information in the form of accounting reports. However,
financial reports do not automatically generate themselves they are the end result of the
accounting process, shown in Figure 5.1.
Figure 5.1
Source documents
Source documents
the pieces of paper that
provide both the evidence
that a transaction has
occurred, and the details
of the transaction itself
Records
Reports
Advice
The information communicated to the owner via the reports is the product of
the recording system, which summarises and classifies transactions. But the records
themselves are generated from the raw data provided in source documents: they
provide the facts on which all subsequent accounting information will be based.
Source documents have two separate yet related functions:
1 They provide the verifiable evidence of the details of a transaction, thus ensuring
that the information in the accounting reports will be reliable; that is, free from bias
or subjectivity.
2 They provide the evidence that is required by the Australian Tax Office (ATO) relating
to the firms income tax and Goods and Services Tax (GST) obligations.
Storing source documents
Because of their importance, source documents must be stored and filed in a safe and
organised manner. Some businesses use something as simple as an expandable file
(also known as an accordion file), or a spike file to keep documents in order, while others
will devote whole filing cabinets to the storage of source documents. Firms that use a
computerised recording system (like QuickBooks or MYOB), can store copies of some
documents electronically, but even they will have to keep hard copies of documents
they have been sent by suppliers and other trading partners.
CHAPTER 5
SOURCE DOCUMENTS
73
GST
Goods and Services Tax
a 10% tax levied by the
federal government
on sales of goods and
services
5.2
CASH TRANSACTIONS
The vast majority of the transactions of a small business will be conducted in cash, so
being able to recognise and record cash documents is vital. Cash transactions fall into
one of two categories: cash receipts and cash payments.
Cash receipts
The term cash receipt can refer to both the transaction that occurs when cash is received
from another entity, as well as the source document that verifies that transaction. All
cash received must be evidenced either by:
a cash receipt (hand-written or generated electronically)
a cash register receipt.
74
UNITS 1&2
Cash receipts should be issued each and every time cash is received, whether it is for
a cash sale or cash fees, a capital contribution, a receipt of a loan or some other source.
The only exceptions are when cash is deposited directly into the firms bank account, in
which case the source document will be the Bank statement. (Bank statements will be
discussed in detail in Chapter 7.)
As a source document, a receipt must specify the date of the transaction, the amount
received, and the reason for the receipt of the cash. In addition, it should be numbered
for easy and accurate identification. Regardless of the type of receipt issued, it must
contain all the information necessary to account for the GST. In most cases, the customer
will be given the original, while the business will retain a copy for its own records.
EXAMPLE
The receipt that would provide evidence of this cash sale is shown in Figure 5.2.
Figure 5.2
Date: ..16/5/2016
........................................................................................................................
T. Downey
Received from: .........................................................................................................
CHAPTER 5
SOURCE DOCUMENTS
75
STUDY TIP
Rec. 26
Tax invoice
Date
Received from
For
Amount
16 May 2016
T. Downey
Secretarial services
$660 (including $60 GST)
76
Figure 5.4
UNITS 1&2
Fashion House
Shop 45
Chadstone Shopping Centre
Chadstone 3148
Telephone 03 9378 3407
#36/1/5742/9745
8934
14:43
1 floral shirt
$132
Total
$132
Your payment
GST 10%
21/12/2016
Gross $132
5.3
Just like cash receipts, all cash payments for goods and services should be evidenced
by a source document, and for most cash payments this should be a cheque butt.
Paying by cheque
When a business pays by cheque, the cheque itself is given as payment and the cheque
butt is retained by the business. This process can seem a little quaint, but the use of
cheques as a method of cash payment provides a level of protection that is not possible
with actual notes and coins. Firstly, cheques mean the owner can avoid carrying around
large amounts of cash. Second, cheques can be traced to identify the business or
individual who deposited the funds into their account. And lastly, the cheque butt that
is retained after every payment provides evidence of the amount and use of the cash.
CHAPTER 5
SOURCE DOCUMENTS
77
The cheque that would be given to P. J. Hacker Real Estate to present to their bank
is shown in Figure 5.5.
On 31 May 2016, Jerrys Temp Agency paid $1 980 for rent $1 800 plus
$180 GST (Ch. 368.)
Figure 5.5
EXAMPLE
Cheque
Normalmeans Bank
Not negotiable
31/5/2016
$1 980
J. Cartman
000 368
084 382
2824 3752
The cheque itself is a document informing the bank (Normalmeans Bank), the
drawee, to transfer funds from the account of the drawer (Jerrys Temp Agency) to the
bank and account of the payee (P. J. Hacker Real Estate.) The drawer actually hands the
cheque to the payee, who then presents it at their own bank.
Cheques should not be made out for cash when paying for business costs because
if the cheque is lost then it can be cashed or deposited into any account. It is a sensible
business practice to nominate the payee and cross it Not negotiable. A cheque that
is marked Not negotiable can only be deposited into the account of the nominated
payee.
Note that although the cheque is signed by the owner, the entity principle assumes
that the bank account belongs to the business. The business is therefore known as the
drawer, as it is the business that is drawing on its account to pay for a purchase.
The cheque also has a number of other significant features:
Cheque number:
Drawee
the financial institution or
bank of the drawer
Drawer
the entity writing the
cheque
Payee
the entity that is receiving
the cheque or to whom
the cheque is written
Not negotiable
a control mechanism that
ensures that the cheque
can only be deposited
into the account of the
nominated payee
000 368
This is the number by which the cheque can be identified, allowing it to be traced.
If anything should happen to the cheque (i.e. if it were reported lost/stolen) the drawer
could inform their bank and have that particular cheque cancelled.
Account number:
084 382
2824 3752
This is the number of the drawers bank account. The first six digits identify the bank,
state and branch at which the account is held (this is known as a BSB number). The last
eight identify the actual account of the drawer.
78
Cheque butt
a source document used
to verify cash payments
It takes three to five working days for cheques to clear, where the bank of the
payee checks with the bank of the drawer to ensure that there are sufficient funds in
the drawers account. If sufficient funds are available, the drawers bank will transfer the
funds to the payees account. Obviously, if both parties (the drawer and payee) are with
the same bank this process should take less time.
Given that the cheque is given to the payee, it is the cheque butt that will provide
evidence of the cash payment. (Even if a cheque is cancelled, the cheque butt should
still be completed to avoid any unnecessary concern that the cheque may have been
stolen.) The cheque butt for our example is shown in Figure 5.6.
Figure 5.6
STUDY TIP
UNITS 1&2
Cheque butt
31 May 2016
Date...............................................................
Monthly rent
For.................................................................
$1 980.00
Amount ........................................................
Balance $......................................................
CHQ No. 000 368
STUDY TIP
In spite of the benefits it provides, it is not always possible to pay by cheque. Many
businesses will not accept cheques unless a prior arrangement has been made, and in
some cases involving small amounts, paying by cheque is simply not appropriate.
For small payments (such as buying milk or basic stationery), a petty cash system
may be used. Under this system, a small amount of cash is set aside with individuals
reimbursed from the petty cash fund for small amounts they have paid on the firms
behalf.
In other cases, the business may use debit or credit cards for purchases, or use
phone and internet banking to transfer cash electronically from one account to another.
However, even in these cases, the basic principles of cash recording still apply, and
source documents must be kept to verify the amount and the use of the cash.
CHAPTER 5
SOURCE DOCUMENTS
79
5.4
Invoice
a source document used to
verify credit transactions
Sales invoice
Jerrys
Temp
Agency
TAX INVOICE
Invoice: 52
Customer:
Service
BOOKKEEPER
Hourly Rate
16
100
GST
TOTAL
Total
1 600
160
$1 760
80
UNITS 1&2
This invoice shows that the Jerrys Temp Agency has provided a bookkeeper to its
customer, A. N. Accountant, who now owes the agency $1 760: $1 600 for hiring the
bookkeeper for 16 hours, plus $160 GST. The seller or supplier (Jerrys Temp Agency)
is also the business that issues the invoice and so will have its name at the top of
the invoice. Conversely, the purchaser or customer (A. N. Accountant) is named in the
middle of the invoice. The original is sent to the customer with the copy being retained
by the seller for its recording purposes. Note that even though this transaction is being
carried out on a credit basis it still must display all the features required by the ATO of
a tax invoice.
Memo
a source document used to
verify internal transactions
Some transactions will not be evidenced by any of the above documents, as they
involve neither a sale nor purchase, nor the receipt or payment of cash (like non-cash
transactions with the owner and certain stock transactions).
These transactions must still be verified by a document, but it will be a document
issued from within the firm, called a memorandum or memo. Memos can be issued for
any number of transactions that cannot be evidenced by standard source documents,
and so their format is much more flexible than the other documents discussed so far. Put
simply, they will describe a particular transaction, and request that it is recorded.
Figure 5.8 shows a common layout for a memo.
Figure 5.8 Memo
memo
gency
Jerrys Temp A
13
y 2016
Date: 24 Ma
From: Jerry
ting
To: Accoun
Dept.
ptop for
e business la
Withdrew on
.
personal use
Signature:
J. Cartman
CHAPTER 5
SOURCE DOCUMENTS
81
EXERCISE 5.1
CASH TRANSACTION
W B
page 60
EXERCISES
The following document was found in the office of Ripper Repair, which is owned by
Harry Hardwood.
Ripper Repair
TAX INVOICE
253
5 Oct. 2016
Being for
Repairs
Amount
$ 500.00
Plus GST
50.00
Total
Signed
Harry Hardwood
$ 550.00
Required
a Identify the source document above, and describe the transaction.
b Explain why this transaction creates a GST liability for Ripper Repair.
c Referring to one Qualitative Characteristic, explain the role of source documents in
the accounting process.
UNITS 1&2
EXERCISE 5.2
CASH TRANSACTION
W B
page 61
The manager of Sallys Alteration Shop discovered the following source document:
1 April 2016
Date...............................................................
Origin Energy
To..................................................................
Electricity
For.................................................................
$715.00
Amount ........................................................
Balance $......................................................
CHQ No. 000 366
Required
a State whether source documents take place at the input, processing or output stage
of the accounting process.
b Identify the source document above, and describe the transaction.
c Explain the effect of this transaction on the GST liability of Sallys Alteration Shop.
d State two reasons why payments should not be made using cash from the cash
register.
e State two reasons why this document would not satisfy the requirements of a tax
invoice.
EXERCISE 5.3
CASH TRANSACTION
W B
page 62
Westpac Bank
31/5/2016
tN
ego
tia
b
Barbeques Galore
le
No
82
$ 935
K. Clarke
CHAPTER 5
SOURCE DOCUMENTS
Required
a Describe the transaction evidenced by the document above.
b Explain why Clarkes Catering could not use this document to verify its cash
payments.
c Identify the drawee, the payee and the drawer.
d Explain how added security is provided when the cheque is crossed Not negotiable.
e State two benefits of paying by cheque
EXERCISE 5.4
CREDIT TRANSACTION
W B
page 63
The accountant for Music Tuition Services came across the following source documents
in a drawer.
Document A
Invoice: 154
11 May 2016
th
Net 30 days
Tax invoice
Customer:
Attn:
Description
Qty
15
Unit cost
Total
30
450
45
Total
495
Document B
Office Plan
Punt Road
Richmond, 3121
ABN: 34 799 631 089
Customer:
Date
May 15
TAX INVOICE
Invoice: x65
Terms: 6/7, n/30
Qty
Unit Price $
Total $
1 500
3 000
Total
300
3 300
83
84
UNITS 1&2
Required
a Identify documents A and B above, and describe each transaction.
b Explain the effect of the transaction in Document A on the GST liability of Music
Tuition Services.
c State whether Music Tuition Services would have the original or copy of Document A.
Justify your response.
d Explain why Document B decreases the GST liability of Music Tuition Services.
e Explain the effect of the transaction in Document B on the accounting equation of
Music Tuition Services.
EXERCISE 5.5
MEMORANDUMS
W B
page 64
The accountant of Larrys Couriers received the following source document in the
internal mail from the manager.
Larrys
Couriers
Memo
ne 3020
16
the Accountant
ken
ionery has been ta
$300 worth of stat
for personal use.
K. Ferris
Required
a Identify the source document above, and describe the transaction.
b Referring to one Accounting Principle, explain why this transaction must be reported
in the Balance Sheet of Larrys Couriers.
c State the effect (overstated/understated/no effect) on each element of the
accounting equation of Larrys Couriers if this transaction was not recorded.