Abstract

Original documents containing details about a business transaction are

referred to as source documents. The source document contains vital
information such as the date and time of the transaction and the parties
involved.

Party name, amounts, date, and the nature of the transaction are also
obtained/verified from the source document. It is typically possible to
distinguish source document by their unique numbers in an accounting
system. It is especially helpful to pre-number documents since it allows them
to be investigated if any are missing.

A source document is indexed for ease of access and archived after the
information in it has been recorded in the accounting system. The current
year’s documents are usually stored on-site.

On the other hand, the older documents are stored at the off-site storage
facility. So, they remain intact and can be utilized in any circumstances.

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 INDEX

SL No Particulars Pg No
1 Introduction 3
2 Source Document in Accounting 4-5
3 Importance of Source Document 7
4 Types of Source Document 7-8
Advantages & Disadvantages 9-10
5 A Case Study of Padma Traders 11-12
6 Conclusion 13
7 Reference 14

Introduction

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A source document is the original document that contains the details of a
business transaction. A source document captures the key information about a
transaction, such as the names of the parties involved, amounts paid (if any),
the date, and the substance of the transaction. Source documents are
frequently identified with a unique number, so that they can be differentiated
in the accounting system. The pre-numbering of documents is particularly
useful, since it allows a company to investigate whether any documents are
missing. Once the information in a source document has been recorded in the
accounting system, the source document is indexed for easy access and
archived. Documents generated within the past year are generally stored on-
site, with older documents being stored in less expensive off-site storage
facilities. Source documents are critical to auditors, who use them as
evidence that recorded transactions actually occurred. A source document is
also used by companies as proof when dealing with their business partners,
usually in regard to a payments. Examples of source documents are cancelled
checks, credit memos, deposit slips, expense reports, invoices, material
requisition forms, purchase orders, time cards, and sales receipts. For
evidentiary purposes, electronic images of source documents are generally
acceptable, though paper-based documentation may still be required in some
cases.

Source Documents for Accounting purpose

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An accounting source document may include a receipt, bill, invoice,
statement, and checks etc. Accounting and bookkeeping are inextricably
linked to source documents. The source documents are automatically created
whenever money is spent or received by a business. Unfortunately, many
advisors have difficulty collecting and managing their clients’ source
documents or do not do so.

So, as a business advisor, you need to learn how to implement an efficient

system for collecting and managing source document by exploring their
importance. Further, your work will be more accurate, faster, and of higher
quality, if you have a system for collecting and managing your clients’ source
documents. Additionally, you will be able to assist your clients in making
better business decisions.

Source Documents in Accounting

All manufacturing systems are identified by their three key elements: inputs,
processes and outputs. Accounting manufactures outputs in the form of
financial statement and financial reports for business decision makers. It
engages a process known as the double-entry bookkeeping system to
accurately capture and categorize inputs so that they can produce meaningful
reports. The accounting process relies on inputs in the form of data taken
from source documents that are generated whenever financial transactions
occur.

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So, source documents then are the essential inputs that provide the details
required by internal accounting systems. They also assist in the internal
control of the resources of the business. Source documents ensure that there
is documentary evidence to support the purchase or sale of items of value and
the receipt and payment of money. Source documents provide the evidence or
proof that a transaction has actually occurred which makes it difficult for
people to misappropriate or steal cash or other resource items from the
business. These source documents are also required by both company and tax
auditors. The details from the source document should be recorded in the
appropriate accounting journal as soon as possible after the transaction has
occurred. After recording, all source documents should be filed away in a
document system where they can be retrieved at a later date if required.
Government tax law requires that these source documents are kept for a
number of years (typically from 3-7years depending on the country). In the
event of an audit, these source documents should support the data recorded in
the accounting journals and the general ledger by providing an indisputable
audit trail from source documents to journals to general ledger to trial balance
to financial statement.

In summary then, accounting source documents are required for:

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1. Providing details of transactions to input into the internal accounting
system on a month-to-month basis

2. Providing evidence of the transactions recorded in the accounting system

in the event of a end-of-year financial audit

3. Satisfying the requirements of the tax law in regard to proof of income and
expenditure.

Information contained in a source document A source document should

describe all the key aspects of the transaction such as:

 the names and addresses of the entity buying/selling the good/services

 the date when the transaction occurred
 the amount of the transaction
 the amount of any taxes
 the nature and purpose of the transaction (i.e. descriptions)
 the special terms and conditions of the transaction (i.e. discount,
payment and delivery details) authorized signature for payment or
acceptance of goods/services

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Importance of Source Documents

Source documents are, first and foremost, important to

the bookkeeping and accounting process because they serve as physical
evidence that a financial transaction actually occurred. Nowadays, these
documents do not necessarily need to be a physical hard copy – they may be
in a traceable electronic form.

In addition, source documents are also essential in the auditing process.

When companies undergo an audit, the auditor’s access to a clear and
accessible paper trail of all transactions enhances the overall legitimacy and
independence of the audit. In order to reaffirm the accuracy of the company’s
balances in individual accounts, auditors need full access to all the
documents. Overall, to run a business more smoothly and enhance
transparency, all its source documents should be kept and stored for future
reference.

Types Of Source Documents

Here are some of the examples for source documents.

Source documents typically contain the following information in their
simplest form:
 Date of transaction
 The total amount for the transaction
 Complete description for the transaction
 Authorized signatures of signatories

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The most common types of source documents are listed below for you to
consider and have a look at.
 Checks
 Invoices
 Deposit Slips
 Receipts
 Cash memos
 Bank Statements
 Payroll Reports
 Leases & Contracts
 Check Copies
 Credit memos
 Sales Tax Returns
 Employee time cards
 Bank statement
 Sale or Disposal of an Asset
 Amortization Schedules
 Deposit slips
 Credit Card Statements
 Purchase orders

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Advantages of Source Document :

It helps in audit of the Transactions as it acts as Evidence .

It helps to minimize the input of wrong information in the books of accounts .

Accountability of Source document helps to reduce frauds in an organization.

Disadvantages of Source documents :

Source document for each and every transactions is not possible , in such
case of transactions their may be possibility of errors or fraud in recording
transactions .

For large organisations , too much of transactions result in too much of

source documents , in that case it is very difficult to maintain hard copy of
source documents.
Common source documents Source documents are generally related to the
particular activity as shown in the table below:

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Source Document Examples

Paper trails are created when businesses make financial transactions. These
documents are referred to as source documents. A perfect source document is
considered an essential element in making the claim standable against any
party in the court of law. It is sometimes necessary to provide a bookkeeper
or accountant with a source document to accurately verify the data and record
the [Link] us consider the example of a sales invoice to have a
perfect idea of what a sales invoice is. Sales invoices are prepared by sellers
of goods on credit. Each copy is delivered to the buyer as the first, but the
seller retains the other copies. The seller retains a copy in case it is needed
later.

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 A Case Study of Padma Traders,Berhampur

Launched in 1983 in Berhampur - The Silk City of Odisha, Padma Traders is

a one-of-its-kind retail store which is an ultimate textiles destination, and has
created a competitive name for itself in all these years. Mostly known for its
wedding and festive collection, Padma Traders also has variety of sarees,
fabrics, handlooms, uniforms, home decor items in wholesale and retail deals
& institutional deals.
In fact this store has something for everyone, and customers always leave
delighted from here. Not just in and around Berhampur, people from
adjoining cities also love everything about Padma Traders.
For more than 3 decades now, Padma Traders has been committed to
providing customers with the best quality products at the most affordable
prices.
"Padma Traders - Not just a retail store, it's a high-fashion experience!"
Way back in 1980’s Berhampur as a city & South Orissa as a region was very
much deserted & was never in to the lime light. But the founders of Padma
Traders revealed the scope of commerce in this region & established the firm
in the year 1983 in a rented space of just 300 sq. ft. with a minimal capital of
Rs. 20,000.

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Our Products

PADMA has earned and become a house hold name for the best and finest
clothiers in the region, having the leisurely space of 10000 Sq. Feet, spread
over three floors, on the main road of Sano Bazar, in the heart of
BerhampurCity, so called The Silk City of Odisha. It unveils the finest array
of Wedding Silks, Designer Sarees, Casual Sarees, Gents & Ladies Dress
Materials, Uniform collections, Decoratives etc catering to the retail stores in
& around the city, retail customers, institutions, government entities etc. Its
main strength is the sharp pricing for quality products and assurance for
timely delivery. Needless to say, at Padma Traders commitment to a
customer always comes first.

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Conclusion

Source documents are created during the completion of financial transactions.

These documents contain details of the transaction like the date, amount, and
parties involved. These documents act as evidence for the execution of the
financial transaction.

These documents are considered an important constituent of the financial

record and help the auditor collect sufficient and appropriate audit evidence.

Reference

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Author- A.K Jain and Varun Jain (2016)

Title of the Book-Accountancy (Pg No- 1.30-1.35)

Author-Mike Piper (2015)

Title of the Book-Accountancy (Pg No- 2.60-2.65)

Author- Kenneth Boyd (2012)

Title of the Book-Accountancy (Pg No- 1.80-1.86)

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