SOURCE DOCUMENTS —MEANING, FUNCTIONS AND TYPES

As the name suggests, source documents are documents that serve as sources of information for making entries in the books of account. 

Source documents are the starting point for recording transactions in a company's books of account.

Source documents also serve as evidence that transactions truly take place. They serve as the original records of any business transaction.

Verifiability in accounting is only possible when there are source documents.

If no source document, the auditor cannot verify accounting records and his work become more difficult.

Functions of Source documents

1. They serve as evidence that a business transaction has truly occurred.

2. They are used to record transactions in the journal before being posted to the ledger.

3. Source documents are used to detect fraud.

Types Of Source Documents

There are ten major types of source documents, namely; sales invoice, purchase invoice, debit note, credit note, petty cash voucher, bank teller, payment voucher, receipt, vouchers and bank pay-in slip.

1. Sales invoice: This is issued to the consumer when sales are made on credit. 

The sales invoice will contain the name of the customer, the date of the transaction, and the amount of the credit sales.

A sales invoice is usually used in the preparation of the sales day book/journal and, therefore, serves as the source document of the sales journal.

A sales invoice may contain the following:

1. Names of the buyer and seller.

2. The buyer's and seller's addresses

3. Quantity of goods sold.

4. A description of the sold goods.

5. Price per unit for each commodity.

6. Conditions of sale

7. The signatures of the buyer and seller.

2. Purchase invoice: This is received by the business from a supplier for purchases made on credit.

The purchase invoice would contain information like the date of the transaction, the name of the supplier, and the amount of the credit purchases.

Purchases invoice is usually used in the preparation of purchases day book/journal.

Accordingly, it is the source document for the purchase journal.

A purchases invoice may contain the following:

A purchases invoice may contain the following:

1. Names of the buyer and seller.

2. The buyer's and seller's addresses

3. Quantity of goods purchased

4. A description of the purchased goods.

5. Price per unit for each commodity.

6. Conditions of sale

7. The signatures of the buyer and seller

3. Debit note: Sometimes, companies usually return goods to the supplier due to reasons such as defective or poor-quality goods. 

Hence, the debit note is issued to indicate that part of the money owed by the companies has been reduced. 

A debit note serves as the source document for purchase return journals.

The debit note can also be issued to correct any mistake made in understating the indebtedness of the customer.

4. Credit note: Often, customers usually return goods to a business due to reasons such as defective goods.

Hence, a credit note is given to the buyer by the business.

The effect of the credit note is that the sales of the business are reduced.

A credit note is the source document for the sales return journal.

A credit note is also issued when there is an overcharge.

5. Petty cash voucher: This covers payment credited to the petty cash book.

Petty cash payment is, in effect, a payment voucher for petty expenses.

6. Bank teller: This is used to pay or lodge money into the bank.

A bank teller is a source document because it serves as evidence that money has been paid into a specific bank.

The bank teller usually contains the name of the depositors, the account to which the money is paid, the amount paid, the date of judgement as well as the name on the account to which the money is paid.

7. Payment voucher: This is a source document used to service the sum of money paid for a particular expense or service.

It is a written document specifying that a sum of money has been paid. The person being paid the sum of money must sign it to make it authentic.

A payment voucher usually contains the name of the receiver, purpose of payment, the amount paid etc.

8. Receipt: This confirms that the person whose name is on the document has made a payment to the business.

Thus, it serves as proof of payment to the buyer. 

A receipt serves as the source document for cash journals or cash books.

A receipt should not be confused with an invoice as an invoice is a mere request for payment while a receipt is proof of payment.

The difference between receipt and invoice has been extensively discussed here

9. Quotation: This is a source document sent by a seller to a buyer listing the prices of goods.

In general, a quotation is requested when a business does not have a published list of prices or when a service is being provided.

Therefore, there won't be a need for a quotation if the company has a fixed fee for its goods.

Typically, a quotation includes the following:

1. An explanation of the price

2. The time frame for the delivery of the goods or the completion of the service.

3. If applicable, An expiry date for the quotation.

10. Bank Pay-in slip: This is a source document used to enter information for the cash book's bank column (debit side).

In a bank pay-in slip, you'll find the following details:

1. The depositor's name

2. The depositor's phone number

3. The day the funds were deposited in the bank.

4. The company's name

5. Business's account number.

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