Source Documents Importance

2. Source Documents

2.1 Types of Source Documents

Source documents are a form of documentary evidence when a transaction occurred. They usually contain the date of transaction, amount of money, description of the transaction, all parties involved in the transaction. These source documents are used as the source information for recording in the appropriate books of prime entry. There are many types of source documents available. For instance, bank statement is a summary of transactions which have occurred over a given period on a bank account held by a business or person. It is issued by bank to customer. Deposit slip is used when you make a deposit into a bank account. Next, receipt and cash register slip are used as evidence of cash sales. Furthermore, invoice is use to record credit sales, credit purchases, purchases of assets on credit and sales of assets on credit. Credit note is issued by supplier to customer when they have overcharged to customer. Debit note is issued by supplier to customer when they have undercharge to customer. Besides, bank debit advice is issued by the bank when decreases in deposit account balance. Unlike bank debit advice, bank credit advice is issued by the bank when increases in deposit account balance. Cheque counterfoils is used to record all bank transactions such as payments to suppliers and creditors, receipt from customers and receivables, and bounced cheque. Moreover, voucher is used instead of cash to make purchases. Account statement is issued by the suppliers or creditors to update the Purchases Journal on monthly basis. Last but not least, memo is used for internal transactions such as drawings of non-cash items and capital contribution of non-cash items.

2.2 Importance of Source Documents

Source documents are evidence and it is imperative that you them in a well-organized filing system for easy retrieval when required. It is a law and a legal requirement to retain source documents. Source documents are important because it may help to minimize the input of wrong information in the books of accounts. The proper maintenance of source documentation is a key and often overlooked factor to ensure proper and accurate transactions are posted to the accounting system. It will provide better internal controls and better financial reporting. Account accuracy also helps financial institutions retain customers and improve their reputation in marketplace. Besides, it is important because it may help easy communicate to coworker as well as auditor. Next, source document also helps to reduce frauds in an organization such as invoices and receipts. By all counts, source documents are important as they act as proof to show that the transaction recorded in the books of accounts occurred.