Types Of Source Documents & Functions

Source documents play a vital role in the Accounting Cycle.

This article looks at what is source document, its importance, good salient features of a source document, type of source document and its individual use/function.


Definition of a Source Document:

• A written document that provides details of a transaction and the evidence that the transaction has taken place.
• All accounting entries are based on information derived from these source documents.

Importance of Source Documents:

• Source documents are important to businesses - to provide evidence or proof that a transaction has occured;
• Used as part of a process to record information into the books of original entry and are required for audit purposes.

Salient features of a good source document:

1. Date when transaction took place;
2. Names and addresses of the parties concerned namely the buyer and seller;
3. Nature of the transaction ie description of the goods or services;
4. Terms and conditions of the transaction ie trade discount, cash discount, delivery details and an authorised signature.

Types Of Source Documents And Their Uses/functions:

INVOICE:

• To inform buyer of the amount to pay for goods&services supplied by the seller

CREDIT NOTE:

• To correct an overcharge in the invoice
  

DEBIT NOTE:

• To correct an undercharge in the invoice
  

PAYMENT VOUCHER:

• Used as evidence of payment to a named party

PETTY CASH VOUCHER:

• Used as evidence of payment ( very small sum) to a named party

CHEQUE COUNTERFOIL:

• Used as record of amount paid on a particular numbered cheque to the payee
  

RECEIPT:

• To acknowledge money received
  

BANK STATEMENT:

• As summary of monthly transactions of current account holders with the bank.