It comes from the source, meaning the source of the document. Source accounting documents or simply source documents are financial documents that provide financial details about a company.
Consider this, whenever there is a financial purchase or a slip from the supplier, it creates a financial trial, referred to as a source accounting document.
This financial trial is very important in the accounting sense. It helps accountants keep track of financial records and help them in bookkeeping Furthermore, in times of financial distress, it also helps keep track of any financial irregularity.
This means that the source documents are also important for a financial audit.
Important points regarding source accounting documents
Some important points regarding source accounting documents must be kept in mind. The important points are given as follows:
- The source documents must be first recorded somewhere, like in excel, and then their physical copies must also be stored.
- While it is helpful to have the original documents, under the regulation by the internal revenue service IRS of the United States of America, copies of the original are also submittable in most cases.
- It can be helpful to keep track of the source accounting documents under different software.
Main types of Source accounting documents
While there are many source accounting documents, the five main types of accounting documents are shown in figure 1.
Figure 1: Main types of source accounting documents
The five main types of source accounting documents shown in figure 1 are Quotes, Orders, Dockets, Invoices, and Notes.
All five of them can be further divided into multiple types. The details of all five types of source documents are given below:
Quotes are self-explanatory. Quotes are the source accounting document created when a business asks a supplier for quotes. This can be quotes about raw materials, products, or services.
For example, if the supplier is a manufacturer, it will be a product, while if the supplier is a law or accounting firm, the quote will be for a service.
The other type of quote would be from a business, which is the supplier, to another business in this scenario.
So, the same quote can go both ways. It is a very useful source accounting document, as every dealer may be quoted a different price depending upon the size of the order, the terms of the dealers, and the relationship with the supplier or the order.
This means that every business employee quotes the same price so there is no miscommunication between the suppliers.
Consider that you are running a business when ordering from a supplier. You will also receive the purchase order foam when you receive the order.
This contains all the details regarding the purchase from the supplier. Several orders, size, dimensions, purchase price, delivery time, who received the order, who delivered the order, etc.
The order form is called a purchase order foam when received by the business, and a sale order foam when received by the supplier.
The order foam is one of the most important sources of accounting documents. During a warehouse audit, these are seen as the most important piece of the puzzle to track missing products.
It provides clear and concise details about the delivery order. As both supplier and buyer check it, it reduces any margin of errors.
Delivery dockets are a list of products shipped by the supplier. It is a source document that helps account for any misappropriation from the supplier side.
An employee receives a delivery docket and checks it against the order the supplier has just shipped.
The employee can count the number of products and match it with the amount written in the delivery docket. It is a fast and quick method for matching the shipments from the suppliers.
It helps in quickly resolving any issues by just contacting the supplier. It also helps in reducing any uncertainty about manufacturing.
In just in time production method, all the suppliers must be in sync, and if even a single part is not available, it can stop the whole production line.
To avoid such issues, the delivery dockets shipping documents can prove to be extremely useful.
Invoices are sourcing documents of purchase and sale. So, there are two main types of invoices.
4.1 Purchase Invoices
When we purchase something, we get a receipt, it is also called a Purchase invoice. It is a record of our purchase.
If we do not pay the supplier at the time we purchased it, the supplier will keep the purchased invoice.
4.2 Sales Invoice
The opposite side of the purchase invoice is the sale invoice. The purchaser will keep the sale invoice. It helps in tracking all the purchases by the business. It is very important for bookkeeping.
Consider that you are a supplier, and the buyer returns the item he/ she purchased. It means that buyer has to be refunded.
This will show in the books as notes. It is very important in double-entry bookkeeping. It helps keep track of money owed and other businesses that owe money. There are two main types of notes:
5.1 Debit Notes
This is noted as a debit note in the supplier’s book as the refund comes up as an amount owed to the buyer.
5.2 Credit Notes
This is the same as the debit note. But, the only difference is that it is noted in the books of the purchaser.
Source documents are an important source of accounting. These documents play a pivotal role in keeping track of all financial transactions of a business.
These documents also play a very important role when financial audits of a company are conducted. Without these documents, it is nearly impossible to keep track of the purchases or sales, salaries, etc of a business.