Business source documents are the primary source of information. These documents contain valuable primary data for bookkeeping and accounting records.
Business source documents can also be used as audit evidence and for tax compliance purposes.
Let us discuss what are business source documents and the top 7 source documents used most widely.
What are Business Source Documents?
A business source document is the physical form of a document that records a business transaction. The physical form is often in the paper substance that documents the transactions made by a business.
Business source documents are often related to the financial transactions of a business. They record money received and paid by the business. These transactions can be in credit or cash form.
However, a source document records non-financial transactions as well. Many of these source documents are issued to or received from customers as well.
Digital and computerized source documents often do not require manual stamping. However, if a business source document is issued manually, it should be stamped and signed by the issuing authority.
Information Stored on a Source Documents
As there are several types of business source documents, the format and information stored on each one can vary from other documents.
Generally, a business source document will record all details relevant to the transaction. For instance, if it is a cash receipt, it will record the date, amount, payer, payee, and reference number to the transaction.
Commonly stored information points on a source document include:
- Transaction date
- Transaction description or details
- Folio number or serial number
- A reference number (where required)
- Amount in numbers and words
- Payer/Payee details
- Authorized signature and stamp columns
The exact number of columns and information recorded will depend on the type of source document. The business can add or delete any information as and when needed.
Importance of Business Source Documents
Source documents form the basis of any record-keeping system. The bookkeeping system also depends on the source documents.
Bookkeeping records require documented evidence to record financial transactions. Therefore, source documents offer that documented evidence and help maintain a consistent bookkeeping system.
Business source documents are also important for internal and external audits. Audits require source documents to track and verify financial transactions.
Source documents are helpful in internal auditing as well. These documents are essential to reconcile financial transactions.
These documents also play an important role in financial statement preparations. Source documents are a useful source for the reconciliation and primary data source for the general ledger. That in turn is used to prepare financial statements of a business.
In short, business source documents provide primary financial data of a business. Also, these are important documents that provide reconciliation and auditing sources.
7 Important Business Source Documents
Business source documents record essential records of the transactions a business makes. Therefore, there are several types of source documents in use.
Here are the top 7 important and most widely used business source documents.
Checks and Bank Statements
Most businesses issue checks to make payments. A check is a mode of payment for a business. It is also an important source document that a business can use as a primary data source.
Bank statements are other important financial records that provide financial transaction trails. Bank statements include all cash and credit transactions.
Therefore, checks and bank statements not only act as source documents but as audit evidence as well.
Invoices are issued for billing purposes. Thus, keeping a copy of every invoice issued can help a business streamline its accounts receivable.
Invoices are issued with additional original copies. Therefore, invoices can easily be used as a primary data source.
Invoices are also useful when reconciling accounts receivable. These documents can help in managing supplier relations as well.
Another important use of invoices can be in the case of invoice factoring. Large businesses often outsource their invoice collections to third-party specialists. These documents can also be used as evidence for other types of loans by a business.
Credit and cash receipts form the basic bookkeeping trail of a business. A business must issue cash and credit receipts.
Further, business receipts can be of different types as well. Receipts are issued for credit and cash transactions.
Some common types of receipts used include:
- Purchases receipts
- Credit card receipts
- Cash payment receipts
- Invoice receipts
A receipt is one of the primary bookkeeping data. A receipt records the transaction date, amount, payee detail, transaction details, and so on.
Receipts are useful source documents for managing supplier and customer relationships as well.
Employee Time Cards
Employee time cards record the working hours of employees of a business. These time cards help in paying the employees accurately and on time.
Many businesses keep a track record of the employees working hours to bill their customers. Most consultancy and service businesses charge their clients according to the employees’ working hours on a specific project.
Therefore, employee time cards not only satisfy an internal compliance requirement but also help in keeping an accurate billing record of the business.
Time cards can act as primary source documents for payments to employees as well as the finance department when managing payments.
Deposit slips are documentary evidence of depositing cash or checks to a bank account. These slips contain the transaction date, bank account details, account title, amount, and transaction reference number.
Deposit slips can also be used by cash businesses for customers depositing funds at counters. For instance, an insurance premium can be collected at the counter by an insurance company throughout its branches.
A deposit slip acts as a source document for the business and documentary evidence for the customers.
Purchase orders are issued to define the purchasing requirements and details of a business. It specifies the quantity required, price, date, and delivery address for the seller.
It is the first document that confirms the purchase of material or services by the buyer. The seller may negotiate the prices and delivery time afterward as well.
Therefore, a purchase order is a useful source document for the procurement department of any business. It can help the department manage its inventory and other types of purchases smoothly.
A purchase order can also be used as audit evidence for payments made to suppliers.
A cash book contains a cash payment and a cash receipt journal. It records every business transaction made in cash by the business.
Keeping a track of the cash flow of the business is important for managing the working capital. A cash book records all the cash inflows and outflows of a business.
In the long term, a cash book can offer a verifiable cash log for the business. This cash log can be used to measure the cash flow requirements of the business.
Therefore, keeping an eye on cash transactions can help a business manage its working capital in the short term and liquidity requirements in the long term.
The Originality of Business Source Documents
The original source documents are always preferred by regulators and auditors. However, scanned documents and photocopies of the original documents are also acceptable in most jurisdictions.
A copied source document should contain the same information without any distortion or forgery over it. As long as it presents accurate information, it will be an acceptable form of a source document.