6.2 Source Documents
Accounting 11
Source Documents
• As you have learned from Ch. 6.1, transactions
are first recorded by accounting personnel as
journal entries.
• But where is the information obtained?
• Bills
• Customer Receipts
• Purchases or Sales Invoices etc…
• These papers are the records used by
accountants to record transactions.
Definition of Source Document
• Are papers/records that shows the nature of a
transaction & provides all information needed to
account for a transaction done by a business.
• Has to be something tangible (able to touch) &
shows a contract between 2 parties.
• Can’t be an I.O.U on a dinner napkin.
• Only exception is when there is an internal business
dealing within a company.
• Ex. Owner withdraws money.
• There still needs to be some type of paper record.
How long does a business have to
keep Source Documents???
• Most companies are required to keep documents
for 3-7 years (depends on area’s tax laws).
• They are kept for reference purposes, for locating
errors, or proof of a transaction.
Common Types of Source Documents
1.
2.
3.
4.
5.
6.
Cash Sales Slip
Sales Invoice
Purchase Invoice
Cheque Copies
Cash Receipts Daily Summary
Bank Advices
For Our Example
• Assume you run a company named
MASTHEAD MARINE.
Cash Sales Slip
• Is a business form showing details of a
transaction in which goods or services are
sold to customer for CASH.
Title
• Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Vivamus et magna. Fusce sed
sem sed magna suscipit egestas.
• Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Vivamus et magna. Fusce sed
sem sed magna suscipit egestas.
Sales Invoice
• Many businesses do not deal directly with the
general public & therefore do not normally have
cash sales.
• These types of businesses usually make all their
sales on account (A/R).
• For these types of transactions a Sales Invoice
document will be used instead of a Cash Sales Slip.
Purchase Invoice
• Are receipts for when a company makes
purchases for goods/services.
• A company can purchase something in 2
ways:
– They pay Cash
– They pay on Account (A/P)
Cheque Copies
• For most businesses, the most common method of
making payments is by issuing a company cheque.
• The reason this is done is because cheques leave a
‘paper trail’ or record of transaction.
• A CHEQUE COPY is a document supporting the
accounting entry for a payment by cheque.
Cheque Copies
• Cheques can be issued for many reasons:
– Cash purchases
– Payment of Staff Wages/Salaries
– Owner’s Withdrawals
– Payments on accounts for Purchase Invoices
– Etc…
• A cheque by itself is NOT sufficient proof of a
transaction, it must be accompanied with a receipt
to prove purchase/payment
Cash Receipts Daily Summary
(Definition)
• Is a business paper that lists the money coming
in each day from their customers.
• This document shows:
– Names of Customers
– Dollar Amounts
– What is being paid for in each case.
Bank Advices
• There will be times when your Bank automatically
initiates a change in your bank account or the
business bank account.
• The bank must legally inform you of this by
sending you a document called a Bank Advice.
2 Types of Bank Advices
• Bank Debit Advice
– a bank document informing the business of a
DECREASE made in the business’s bank account.
• Bank Credit Advice
– a bank document informing the business of an
INCREASE made in the business’s bank account.
Title
• Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Vivamus et magna. Fusce sed
sem sed magna suscipit egestas.
• Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Vivamus et magna. Fusce sed
sem sed magna suscipit egestas.
GAAP – COST PRINCIPLE
• States that the accounting for
purchases must be at the cost price to
the purchaser.
• You cannot change the value of an asset
if it becomes more/less value after you
purchase it.
• You record it on your books at the price
you paid for it.
Your Homework for Today
• Review Questions 1-25 on page 173 -174