Source documents are the original records or written evidence of business transactions. They show that a transaction actually took place and give all the important details about it.

Whenever a business buys or sells goods, receives or pays money, or performs any financial activity, there must be a document to prove that the transaction occurred. This document is what we call a source document.

For example, when a customer buys goods and is given a receipt, that receipt is the source document. It is the first record of the transaction and will later be used to enter information into the books of account.

In simple terms, a source document is the proof and starting point of all accounting records.

Source documents are very important in book-keeping and accounting for the following reasons:

1. They serve as evidence of transactions: They show that a particular business transaction actually took place.


2. They are the basis for recording: Information from source documents is used to make entries in the books of original entry (journals and cash books).


3. They help to prevent fraud: Because transactions must be supported with documents, it becomes more difficult for workers to cheat or steal.


4. They help to detect and correct errors: If there is any mistake in the records, the source document can be checked for the correct information.


5. They are useful for auditing and investigations: Auditors rely on source documents to verify the truth of business records.


6. They provide information for decision-making: Business owners and managers use the details in source documents to plan and make informed decisions.

There are several types of source documents commonly used in business transactions.

1. Invoice An invoice is a document sent by a seller to a buyer when goods are sold on credit.
It shows the details of the goods, the quantity, unit price, total cost, and the amount the buyer owes.
It is a source document for credit sales.

2. Receipt A receipt is given by a seller to a buyer as evidence that payment has been made.
It shows the date, amount paid, name of the payer, purpose of payment, and signature of the receiver.
It is a source document for cash received.

3. Credit Note A credit note is issued by a seller to a buyer when goods previously sold on credit are returned or when there has been an overcharge.
It reduces the amount owed by the buyer.

4. Debit Note A debit note is issued by a buyer to a seller to request a reduction in the amount owed.
It is usually sent when the buyer returns goods or complains about overcharging.

5. Cheque and Cheque Counterfoil A cheque is an order written by a bank account holder instructing the bank to pay a certain amount to someone.
The counterfoil is the part kept by the account holder as evidence of the payment.

6. Bank Deposit Slip / Teller This is a document issued by a bank when a customer deposits money into an account.
It shows the date, amount, depositor’s name, and account number.

7. Cash Register Tape or Cash Sales Slip These are printed records from a cash register or point-of-sale machine showing details of cash sales made.

8. Purchase Order This is a document sent by a buyer to a seller requesting the supply of goods.
It shows the description, quantity, price, and delivery details of the goods ordered.

9. Delivery Note A document sent by the seller to the buyer along with the goods to confirm that the items have been delivered.

10. Proforma Invoice A document sent to a buyer before goods are supplied.
It shows the price and details of the goods and is used mainly for quotation or information purposes.

A good source document usually contains the following details

1. Date of the transaction


2. Names of the parties involved (buyer and seller)


3. Description of the goods or services


4. Quantity and unit price


5. Total amount involved


6. Terms of payment (cash or credit)


7. Document or reference number


8. Signature or stamp of the authorized person

Source documents can be grouped into two main types based on the nature of the transaction:

1. Documents for Cash Transactions
Used when money is paid or received immediately.
Examples: Receipt, Cash Sales Slip, Bank Teller.

2. Documents for Credit Transactions
Used when payment is made at a later date.
Examples: Invoice, Credit Note, Debit Note.

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Examples of Source Documents

1. Receipt

2. Invoice

3. Bank Deposit Slip (Teller)

4. Cheque

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All source documents should be properly filed and stored in an orderly manner because:

1. They may be needed in the future for reference.


2. They are useful for preparing financial statements.


3. They may serve as legal evidence in case of disputes.


4. They make it easier for auditors to verify records.

Summary

1. Source documents are the original written proofs of business transactions.


2. They form the basis for recording transactions in the books of account.


3. Common examples include invoices, receipts, cheques, debit and credit notes, and bank tellers.


4. They contain key details such as the date, amount, parties, and description of goods or services.


5. They are essential for accuracy, evidence, control, and decision-making in business.