Accounting Source Documents

1. Source Documents
The start of the bookkeeping process begins with accounting source
documents - the paperwork.

In most cases, when a business transaction is carried out a document is

produced which contains the details of each transaction.

These documents get their name from the fact that they are the origin of the
information that is recorded into the accounting books.

Both businesses (and people) involved in the transaction will get a copy of
the accounting source document produced.

The documents come in all sorts of shapes, sizes, colors and types of paper.

They can be on physical paper or electronic files like PDF.

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

2. Importance of Source Documents

The source document is essential to the bookkeeping and accounting process
as it provides evidence that a financial transaction has occurred. During an
accounting or tax audit, source documents back up the
accounting journals and general ledger as an indisputable transaction trail.

You would keep source documents for your business just like you keep
receipts for tax-deductible items for your personal taxes. If your personal
taxes are audited, the source documents provide the proof that you've made
those purchases. The same holds true for your business, but in business, you
keep original documents for every financial transaction, not just charitable
donations.

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3. Storing Documents
The source document's information should be recorded in the appropriate
accounting journal as soon as possible after the transaction. After recording, all
source documents should be filed away in some sort of system where they can be
retrieved if and when needed. In certain instances, it may even be important to
provide the chain of custody to be able to determine that the source document in
question remained under your control.

4. Originals vs. Photocopies

In most circumstances, photocopies of source documents are legally acceptable.
The Internal Revenue Service, for example, has accepted photocopies of receipts
since 1997, so long as they are legible, contain all the information present in the
original, and, within the limits of the scanning process, present that information in
a format identical to the original.

A materials receipt that specified the objects purchased and the price paid, but
that was scanned without the name of the supplier would not qualify. A document
that presented all the information in the original receipt, but that had been retyped
in Word or Excel format would also not qualify.

The IRS standard of complete, legible, and accurate reproductions of the original
documents is also used by many businesses and government agencies. Other
institutions, however, may add to these general requirements.

The University of Washington, for instance, only accepts, as substitutes for the
original document, photocopies scanned at a minimum density of 300 dots per
inch (dpi) and presented in either PDF or TIFF formats; it does not accept JPEG
photocopies.

If you plan to scan accounting or legal documents to facilitate storage, check with
the relevant institution to be sure they will accept the documents in the format
you're planning to use.

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5. How Long Should You Keep Business Records?
Many businesses aren't sure how long records must be saved in the paperless
era. Record-keeping is a boring, but important business activity, and if you
make the wrong choices, you risk litigation, succession planning problems
and the wrath of the tax man. Understanding how long should you keep
business records will help you avoid these problems.
The General Rule
The Internal Revenue Service has established some basic record-keeping
rules for tax documents. Outside the tax arena, there's remarkably little
guidance about how long you should keep business paperwork. Most lawyers,
accountants and bookkeeping services recommend keeping original
documents for at least seven years. As a rule of thumb, seven years is
sufficient time for defending tax audits, lawsuits and potential claims.

6. Types of Source Documents

There are many different types of source documents.

Below is a list of ten that are used regularly by most businesses.

I.Quotation.
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.

II.Purchase 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.

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 Order forms will not always show the cost because the buyer may not know
the cost when placing an order.

III.Delivery Note.
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.

IV.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 invoice. The buyer will
enter it into their system as a purchase invoice.

V.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.

VI.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.

VII.Checks (Cheques).
A check (cheque) is a special bank note that represents the cash that is
being paid by the customer.
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 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.

VIII.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.

IX.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
payer’s bank statement as a payment received, and on the customer’s bank
statement as a payment made.

X.Sales Order

Let say you are in the suppliers and you just received the order
(purchase order) from your customer. Now you create the Sale Order for
warehouse or sale team to deliver the goods or service to your
customers.

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 XI. Goods Received Note-
The supplier now deliver the goods to your warehouse and you are
receiving them. You are preparing the documents that list down the goods
that you receiving. This documents called Goods Received Noted

XII. Goods Dispatched Note-

A document of the company that lists the goods that the company has
sent out to a customer. The company will keep a record of goods
dispatched notes in case of any queries by customers about the goods
sent. The customer will compare the goods dispatched note to what they
receive to make sure all the items listed have been delivered and are the
right specification.

XIII. Sales Invoice –

Used to record the goods/services details and the amount owing to the
business by a customer. The original goes to the customer with the copy
held by the business.

XIV. Purchase Invoices –

Used to record the goods/services details and the amount owing by the
business to suppliers. The original is provided by the supplier to the
business.

XV. Debit Note –

Used by a business/supplier to correct an undercharge in the invoice

XVI. Petty Cash Voucher –

Used as evidence of cash payment to another party

XVII. Cheque Butt/Stubs –

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XVIII. Used to record the amount paid on a particular numbered cheque to the
payee.

XIX. Cash Receipts –

Used to acknowledge money received from customers and cash paid to

suppliers.

XX. Bank Statement –

Used as a summary of cash movements through the business bank

account.

XXI. Memorandum –

Used as a note explaining a transaction if no other documents exist.

7. The Source Documents of Sanken Construction for

Building Construction Company.
There are many business transactions occur every day and those of
transactions are records and control by different sources documents. The
following is the Sources Documents of Sanken Construction pvt. Ltd in
building construction industry in Sri Lanka.

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Material Requisition Form (MRF)

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Good Receiving Note (GRN)

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Gate Pass

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Delivery Note

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Packing List

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Quotation

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Purchase Order

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Invoice

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Performa Invoice

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Tax Invoice

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Debit Note

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Credit Note

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