What are Source Documents?
Every time a business is involved in a financial transaction, a paper trail is generated. This paper trail is referred to in accounting as source documents. Whether checks are written to be paid out, sales are made to generate receipts, billing invoices are sent by suppliers, or work hours are recorded on an employee’s timesheet – all the respective documents are source documents.
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.
Common Types of Source Documents
In its simplest form, a source document generally contains the following information:
- The date of the transaction
- The total amount of the transaction
- A description of the transaction
- One or more authorizing signatures
The most common documents are:
- Checks
- Invoices
- Receipts
- Credit memos
- Employee time cards
- Deposit slips
- Purchase orders
Document Storage
Any information generated through source documents should be properly recorded in either the company’s journal, accounting software, or financial books. After the initial recording, all documents should be preserved and organized into a file and put into a system so they can be retrieved at any time. It is also important to make a record of general internal control procedures specifying who in the firm can access and authorize payments, orders, and other transactions.
Originality of Source Documents
In the majority of cases, photocopies of source documents are legally permissible. According to the US Internal Review Service (IRS), as long as these photocopies are complete, legible, and accurate representations of the original document, they are legally acceptable.
Similarly, the Canadian Revenue Agency (CRA) accepts scanned documents as long as the records are produced and retained in paper format or stored in an electronically accessible and readable format. Although organizing and filing these documents can be tedious, putting in the extra time to properly maintain a paper trail and create an easy way to access these documents can result in huge time savings in the future, and also ensures greater transparency.
More Resources
CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.
To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:
FAQs
Solution. “Source documents are the authentic evidence of financial transactions. These documents show the nature of the transaction, the date, the amount, and the parties involved. Source documents include cash receipt, invoice, debit note, credit note, pay-in-slip, salary bills, wage bills, cheque record slips, etc.
What are source document answers? ›
Solution. “Source documents are the authentic evidence of financial transactions. These documents show the nature of the transaction, the date, the amount, and the parties involved. Source documents include cash receipt, invoice, debit note, credit note, pay-in-slip, salary bills, wage bills, cheque record slips, etc.
What are acceptable source documents in clinical trials? ›
Common source documents are participant medical records, phone encounters or notes, lab and diagnostic test results, participant diaries and specific research worksheets used to document key research data elements. If data are entered directly into a computer system, the electronic record is considered the source.
What are the 4 types of source documents? ›
They streamline the audit procedures by increasing transparency. Some source documents are quotes, invoices, orders, delivery dockets, and receipts.
What makes a good source document? ›
A good source document should describe the basic facts of the transaction such as the date, the amount, the purpose, and all parties involved in the transaction. Some examples of source documents include: Bank Statements. Payroll Reports.
What are examples of source documents? ›
The most common documents are:
- Checks.
- Invoices.
- Receipts.
- Credit memos.
- Employee time cards.
- Deposit slips.
- Purchase orders.
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.
What is typically considered a source document? ›
In the accounting industry, source documents include receipts, bills, invoices, statements, checks – i.e., anything that documents a transaction. Any time a business spends or receives money, a source document is created. Source documents are an integral part of the accounting and bookkeeping process.
What is a typical source document? ›
Transactions, general ledgers, trial balances, diaries, and financial statements are a few examples of source documents.
What should source documents include according to ICH GCP? ›
The ICH-GCP Guideline defines 'source data' as: 'All information in original records and certified copies of original records of clinical findings, observations, or other activities in a clinical trial necessary for the reconstruction and evaluation of the trial.
Source documents – such as invoices and purchase orders – can be used to document each sale. These documents can be used to monitor your business' progress, prepare financial statements, identify the source of receipts, track deductible expenses, prepare tax returns, and support items reported on your tax returns.
What are the three ways to document a source? ›
- Quoting a source directly. Direct quotes are usually frowned upon, but there is a process to do this. You should use double-quotes (") around the words that someone else said. ...
- Paraphrasing. You are allowed to paraphrase a source. ...
- Writing as an authority.
Uses of source document
They provide written evidences of the business transactions that has taken place. They can serve as proof of ownership of property e.g. receipt. They are used for audit purposes. They are used for reconciliation of accounts.
How do you know if a source document is reliable? ›
That criteria are as follows:
- Authority: Who is the author? What are their credentials? ...
- Accuracy: Compare the author's information to that which you already know is reliable. ...
- Coverage: Is the information relevant to your topic and does it meet your needs? ...
- Currency: Is your topic constantly evolving?
How do I know if a source is credible?
- An author who is an expert or a well-respected publisher (such as the NY Times or Wall Street Journal).
- Citations for sources used.
- Up-to-date information for your topic.
- Unbiased analysis of the topic (i.e. author examines more than one perspective on the issue).
It is important to be able to identify which sources are credible. This ability requires an understanding of depth, objectivity, currency, authority, and purpose. Whether or not your source is peer-reviewed, it is still a good idea to evaluate it based on these five factors.
What is the source document? ›
Source documents are an internal document that act as tangible evidence of a business deal. They function by giving the bookkeeping process a reference point. A paper trail is created each time a business engages in a financial transaction. The term source documents in accounting refers to this paper trail.
What is in a source document? ›
In the accounting industry, source documents include receipts, bills, invoices, statements, checks – i.e., anything that documents a transaction. Any time a business spends or receives money, a source document is created. Source documents are an integral part of the accounting and bookkeeping process.
What is a source document quizlet? ›
Source document. These are the starting point of the accounting system. They provide evidence of financial transactions - goods or services being bought or sold, and money being paid or received. Each sale, purchase, expense, receipt or payment will be recorded on one of these documents. Invoice.
What do you mean by source document? ›
What is a Source Document? In accounting, the definition of a source document is a piece of paper that proves that a transaction has occurred. Source documents contain pertinent information about the transaction, such as the date, the dollar amounts, the involved parties, and the purpose of the transaction.
