4 IMPORTANCE OF SOURCE DOCUMENT

Source documents are business documents which serve as evidence that a business transaction has occurred.

The four major importance of source documents are as follows; provide evidence of business transactions, use in making accounting records, used for future referencing and used in auditing.

1. Provide evidence of business transactions: This is the main importance of source documents.

Source document serves as evidence that a business transaction truly occurred. 

For instance, a receipt issued by a business to a customer shows that the customer has paid the business a specific amount of money.

Without a source document, they would be no proof that business transactions truly occur.

2. Used in making accounting and bookkeeping records: Recording business transactions as they happen is essential to bookkeeping.

The source document provides us with a first-hand source of accounting information which can be used for recording the business transaction.

Source documents are also used to record transactions in the financial statements of a company.

3. Future reference: Source documents serve as a future reference for business transactions.

Consumers can easily be presented with these documents as a reference in the future if they need them.

For instance, a receipt can be used to prove if a consumer truly paid a certain amount of money when there is an argument about whether he did or not

4. Used in auditing: The existence of source documents makes the auditor's job very easy.

Accounting records are reviewed and examined independently by an auditor.

The auditor reviews the details of every business transaction, which can be found expressly and originally in the source document.

An auditor can use source documents to get authentic information that can be used to spot and stop fraud.

Indeed, verifiability in accounting is only possible when there are source documents backing up transactions.

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