Why Do We Need Source Documents

Below are examples of source documents and related transactions in financial records. Bank statements are not updated immediately and companies sometimes forget to record credits and fees. When this happens, the numbers in their general ledger don`t match the bank statement. It can be tedious to look for the problem if your statement doesn`t include an accurate description of the transaction. However, you can create a more efficient system if you have all the source documents. The source document is a good internal control and provides proof that a transaction has taken place. Providing source documents to your accountant or accountant in a timely manner will help them prepare financial statements and accurately analyze your business. Source documents are essential for auditors to use as evidence that recorded transactions actually took place. A source document is also used by companies as evidence in their dealings with their business partners, usually in relation to a payment. Examples of source receipts include cancelled cheques, credit notes, remittance slips, expense reports, invoices, material request forms, purchase orders, time cards and purchase receipts. Reconcile account balances and receipts to ensure they have been recorded. There are a number of possible controls that can be used to reduce the risk that source documents are not properly entered into an accounting system.

One of the most common controls is the prenumbering of documents to make it easier to find missing documents. Another audit is to reconcile account balances with supporting documentation to determine whether certain documents have not been entered or whether certain transactions recorded in the accounts do not appear to have supporting documentation. When you make a transaction as a small business owner — even if you buy a box of pens for your business — the receipt for that transaction and all the supporting documents become what are called source documents. These original documents, in turn, become an essential part of the paper trail your accountant follows to prepare accurate tax returns and other types of financial reports for your business. Every time a company makes a financial transaction, it generates a paper trail. Accountants call this paper trail one or more source documents. For example, if a small business writes a check from its checking account for office supplies, the cheque and receipt for office supplies become the source documents. “Source document” is a term used in the accounting world to refer to the original document that contains the details of a business or financial transaction. It usually contains information about the names of the parties involved, the amount paid (if any), the purpose of the transaction, and the date. Source documents are often assigned a unique number so that they can be easily identified in an accounting system or software.

A source document describes all the basic facts of the transaction, such as the amount of the transaction, to whom the transaction was made, the purpose of the transaction, and the date of the transaction. As a rule, it is necessary to keep the source documents for several years. The Internal Revenue Service prescribes retention intervals for certain types of payroll documents. If you have questions about how long a document should be kept, contact a qualified lawyer. Nowadays, many companies and individuals choose to store source documents in electronic form. This can be as simple as scanning a receipt or invoice, or even photographing an order for your records. Most businesses and government agencies follow the IRS standard that photocopies or an electronic version of source documents are acceptable as long as they are legible, contain all the information present in the original document, and present the information in a format identical to the original document. This business document comes from an external company.

Since they prove that your company has completed a transaction with another company, they are often considered more important in the accounting world. These are the types of documents that will help you prepare your taxes. A vendor invoice is a source document that supports issuing a cash, check, or electronic payment to a vendor. A vendor invoice also supports the entry of an expense, inventory item, or asset. Many documents can show a transaction – large or small. While a receipt may be an obvious example, some are not so much. To give you a better idea of what to look for, we`ve created a list of some of the most common documents: Before you record a business transaction in your company`s books, you should make sure to specify the transaction date, payer, payee, and correct amounts. Source documents are physical proof of this information and provide a reference point for the accounting process. They can also be used as evidence for an audit or for preparing tax returns.

Although these documents can be physically filed as documents, in many cases they will be electronic with a timestamp and reference date. If you intend to scan accounting or legal documents for ease of storage, contact the appropriate institution to ensure that they accept the documents in the format you wish to use. In most cases, photocopies of source documents are legally permitted. For example, since 1997, the Internal Revenue Service has accepted photocopies of receipts as long as they are legible, contain all the information contained in the original, and present that information as part of the scanning process in the same format as the original. For example, a company is in the consulting business. It collects information about hours worked from employee timesheets, which are then included in customer invoices, which leads to the creation of a sales transaction and accounts receivable. Therefore, in this case, the timesheet is the source document for a sales transaction. Just as there are various source documents for personal finance and business, there are specific source documents for accounting. These documents not only show that an economic transaction has taken place, but they also prove that a company has provided goods or services. In accounting, we classify these two types of source documents as internal or external.

If this happens, you could miss out on valuable tax deductions. Poor organization of your financial documents can also cause you to overspend. Even worse, you could be put at risk during an IRS audit. While this may seem like a tedious task, it`s important that you familiarize yourself with the source documents and how to manage them. When a company generates a financial transaction, it creates a paper trail. This paper trail is called the “source document”. Your accountant or accountant may ask you to provide some sort of source document to verify the data and record transactions correctly. A good source document should describe the basic facts of the transaction such as the date, amount, purpose, and all parties involved in the transaction. Small business accounting includes a variety of documents used to prepare the company`s financial statements.

Purchase orders, invoice source receipts and receipts form the backbone of the books and contain all the relevant details about each transaction. Here`s an overview of these different enterprise source documents and how to use them. Pre-number your documents to keep them in order. This will also make it easier to find missing documents. A source document is the original document that contains the details of a business transaction. A source document captures the most important information about a transaction, such as the names of the parties involved, the amounts paid (if any), the date and content of the transaction. Source documents are often marked with a unique number so that they can be distinguished in the accounting system. Prenumbering documents is particularly useful because a company can check if any documents are missing. We understand that organizing all the different types of source documents is overwhelming at best.

For this reason, we recommend using different tools to manage them. If you`re looking for an easy way to organize your digital and paper receipts, invoices, etc., consider an expense tracking tool like Wellybox. That depends. Once the information has been entered into the appropriate accounting journal (which should be done as soon as possible after the transaction), the source documents should be filed so that they can be easily retrieved if necessary. Some accountants prefer to manage documents for their clients, which can be done easily (and digitally) through the online portal through which you communicate with the company. This way, your finance team has all the information they need securely stored in the cloud, available with just one click. It also ensures that they are ready to give you more meaningful information about your business at any time. The source document is essential to the accounting and bookkeeping process as it provides proof that a financial transaction has taken place.