The final category of source documents used to create accounting records consists of banking 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. At Pridgeon & Zoss, we advocate for both individuals and businesses in their dealings with the Internal Revenue Service (IRS) and the Minnesota Department of Revenue (MDR). We often rely on source documents to prove our clients’ case to the tax authorities. If you are facing an audit or are embroiled in a tax dispute, reach out to our law office today.

  • In certain instances, it may even be important to provide the chain of custody to be able to determine that the source document in question remained under your control.
  • It’ll also show your new balance, available credit, and the last day of the billing period.
  • The source document’s information should be recorded in the appropriate accounting journal as soon as possible after the transaction.
  • Also, the credit note can be sent from the buyer to the seller, in response to receiving a debit note, to acknowledge a seller’s claim.
  • Docs is also cloud-native, eliminating the need for local files and minimizing risk to your devices.
  • For example, the manufacturing department issues a purchase requisition for the goods it needs to complete its upcoming jobs.

In most circumstances, photocopies of source documents are legally acceptable. If your business regularly purchases inventory to be sold, then you’ll process POs. These internal documents detail the dates and amounts of your purchase managing an audit so that you can manage your expenses. Sometimes, the supplier will issue this document to you, or you can create it yourself. After the PO is approved, the vendor will begin the order fulfillment process and return an invoice.

Source Documents: Why They’re Important for Bookkeepers & Their Small Business Clients

It’s important to reconcile your credit card statement to ensure that you haven’t missed any fraudulent charges, and it can serve as evidence that a particular purchase was made. The key source document relating to credit sales made by the business is the invoice. 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. A receiving report is issued and all three of these documents are sent to the accounting department to approve the invoice from the vendor. If all of these documents agree, the invoice is approved and the cashier issues a check for the goods.

  • A source document is an original document, such as an invoice or a canceled check, which contains essential details that will either support or substantiate a transaction.
  • Academic books are great sources to use when you need in-depth information on your research or dissertation topic.
  • Every time a business is involved in a financial transaction, a paper trail is generated.
  • Various regulations mandate that some source documents be retained for a number of years.
  • The check printed from a cash register provides proof that a purchase was paid for in cash or by card.
  • Further along, you might look for primary and secondary sources that you can use to help formulate your position.

When a certain amount is received from a customer, a document is issued as a receipt that shows the date and amount of payment, details of the payer, and purpose of payment. For evidentiary purposes, electronic images of source documents are generally acceptable, though paper-based documentation may still be required in some cases. Invoice/Bill – It is an evidence prepared by the seller to document credit sales. It has all details about the credit sale such as the purchaser, date, price, quantity, etc. Also,
the debit note can be sent from the seller to the buyer when the amount payable
by the buyer increases.

In its most basic form, it acknowledges that a seller has been paid for goods or services. It’s provided only after the goods have been transferred or services have been rendered and the client has paid in full. Sales receipts are internal documents for sellers and external documents for buyers. In the modern era, many businesses and individuals choose to store source documents in electronic form. This can be as simple as scanning a receipt or invoice or even taking a picture of a purchase order for your records. An invoice is a bill that’s drawn for customers after purchasing goods or receiving services by the business.

Initially, it requests a product or a service, but it is a binding agreement once the seller accepts the purchase order. A receipt is a financial source document that provides proof that cash was transferred from one party to the other. When
a company sells any product or service to another party, it issues an invoice
or a bill. The invoice shows the description of the product, the parties
involved in the transaction, the date, the quantity and the price.

How Long to Retain Source Documents

While both of these reasons may be true, bookkeepers who have a process in place for collecting and managing source documents can forge more powerful business partnerships with their clients. For starters, it can help your clients to prepare for an audit and increase accuracy and efficiency in your bank reconciliation workflow. Bank statements are important because they summarize all of the transactions that have taken place in a bank account during a specific period. This information is necessary for the preparation of accurate accounting records.

It’s an internal document sent to the customer after the item has shipped and helps to maintain cash flow and streamlines the accounting process. As shown in the sample below, a typical invoice includes the seller and buyer details, date, invoice number, payment due date and payment terms, a description of the service or product, and amount charged. Source documents are used to record transactions because they are original and show an objective report of the economic activities of each transaction. This document gives the buyer’s accounting department an objective and reliable record of the purchase transaction. It also gives the vendor a document that can used to record the sale of goods.

How can bookkeepers better manage source documents?

Popular sources like magazines and news articles are typically written by journalists. These types of sources usually don’t include a bibliography and are written for a popular, rather than academic, audience. They are not always reliable and may be written from a biased or uninformed perspective, but they can still be cited in some contexts. They may be the only record of certain transactions, such as payments made directly into the bank account of a supplier by a customer through the banking system (a BACS transfer).

It consists of the date, amount, and other relevant information of a particular transaction. 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. Source documents are vital when it comes to bookkeeping and accounting because it proves that a particular financial transaction has occurred. For example, a company that sells widgets would want to keep track of all widget sales.

What are Source Documents?

If your business has employees, maintain copies of their timesheets and expense reports as a backup in case there’s ever a question about the accuracy of a transaction. Often, businesses will bill their clients for time or expenses that were incurred by their employees. These documents serve as proof and can be attached to invoices that are sent to the client. A credit card statement is a summary of how you used your credit card during a billing period.

Source document

Although they’re often written by experts, encyclopedia entries are not typically attributed to a single author and don’t provide the specialized knowledge expected of scholarly sources. As a result, they’re best used as sources of background information at the beginning of your research. In the business world, credit notes are raised before the bill is paid most of the time, so the amount is taken off the amount paid for the current purchase. Whether or not the customer issues a debit note, the response of the business (if it believes the complaint is justified) is to issue a credit note. When a business delivers goods or provides services and allows the purchaser time to pay (in other words, makes a credit sale) it will issue an invoice. As you can see, all of the source documents are used to ensure that only proper goods are ordered, received, and paid for.


In accounting, a “source document” refers to any document that substantiates and evidences a transaction. It’s important to retain and organize these documents to research problems or questions that arise concerning transactions. You also might need to provide these to the IRS if it audits you or questions anything related to your tax return.

A failure in the system at this point would mean that an unscrupulous trader could simply issue invoices for non-existent goods or services to businesses taken from a trade telephone directory and get paid. Fourth, Maiden checks the invoice against the purchase order and possibly the dispatch note. The aim is to ensure that the goods were genuinely ordered and have been received. For example, the manufacturing department issues a purchase requisition for the goods it needs to complete its upcoming jobs. Once it is approved, a purchase order is issued and sent to the receiving department when the goods received are compared with the purchase order. The part on the left is used as a counterfoil, whereas the right part is for use by the banker.