October 19, 2020

SB-Accounting

Accounting + Finance Blog

Source Documents: Meaning and Explanation

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An integral part of bookkeeping and accounting is source documents. This is where the origination of data that becomes a financial statement begins. Source documents are powerful tools. Without them, a business may lack direction. The owner(s) may not know what is going on with the financial resources of the firm. It will look as if the business is blind.

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Meaning of source documents

Here are three definitions of source documents:

Simply put, source documents are those documents that show”evidence” of a particular transaction or an event.

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It can also define a source document as a document that reveals the details of a particular transaction or event before they are posted to the books of accounts.

In addition, it can be defined as a document of originality as regards a particular transaction or event that occurs in an organization.

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Explanation of Source Document

From the above definitions, the following points can be deduced

Evidence: A source document is evidence! To prove that a particular transaction or event takes place, the persons behind it must show evidence. For example, when there is a sale transaction, the evidence must be presented as proof of such a transaction.

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Transaction or Event: Transaction is an activity that transpires in an organization. It could be the purchase of furniture. Or paying electric bills. A transaction always contains two types of data. Qualitative (non-countable) data and Quantitative (countable) data.

Books of account: This term means all books used to record the transaction in an organization. Generally, the books of account in a trading organization includes subsidiary books and ledgers.

Document of Originality: This implies that a source document is an original document. The truth about information can only be found by tracing it to the source document. Auditors know this. For example, when conducting audit trails, the auditor may commence from the source document to the financial statement and vice versa.

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Conclusion:

A source document is a vital part of every business. With digitalization, source document can be generated from an accounting software and printed out to the customer or sent via email. Also, Microsoft Excel can be used to construct the format of a source document for an organization.

Next, the functions of the source document will be discussed.

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