Facts you don’t know about Source documents

Source documents may be defined as original documents on which monetary transactions are recorded, which provide necessary information for the preparation of books of original entry. It can also be defined as original documents on which information is recorded about business transactions.

Transactions are the major feature of any business. The business transactions take place when goods and services are transferred from one person to another. There are two types of transaction namely cash and credit transaction. Cash transaction means that money is paid immediately the transaction occurs. Credit transaction means that payment for what is bought or sold is made at a later date.

Importance of Source Documents

The following are the importance of source documents:

1. To originate data for accounting records.
2. They act as working evidence or as a proof of occurrence of such transactions.
3. They enable various books of accounts to be opened.
4. They serve as a source of information.

Evaluation:

1. Explain the types of transaction
2. State three importance of source document.

Types of Source Documents

The major types of source documents include the following:

(a) Invoice

This document is usually issued by the seller to the buyer immediately goods are dispatch or services rendered on credit. It shows the date of sale, description of goods bought or sold, quantity, unit price, total cost.

(b) Receipt

This document serves as an evidence of payment for goods bought or sold and services rendered. Receipts are given or received whenever cash is paid or collected for goods bought or sold or services rendered. It shows the following particulars:

(i) The reason for payment

(ii) The amount of money received

(iii) The person who made the payment and to whom the payment was made to.

(iv) The date of payment

(c) Cheque

A cheque is defined as a written order or instruction made upon a bank to pay a specific sum of money to a named person at a specific date. A cheque is a source document used as a means of receipts and payments instead of the physical cash.

Parties to a Cheque

There are three parties to a cheque namely – the drawer, the drawee and the payee

• The drawer is the owner of the account who issues out or draws the cheque.
• The drawee is the bank to which instruction is given to pay.
• The payee is the person to whom the money will be paid.

(d) Debit Note

This is sent by the seller to the buyer when there is an undercharge in the original invoice. A debit note can also be sent when there is an omission or return of goods.

(e) Credit Note

This is normally printed in red to distinguish it from an invoice. It is used when an invoice is overcharged, that is when the buyer is wrongly overcharged or goods are returned by the buyer. It is also called a credit memo.

(f) Petty Cash Voucher

This is a written authorization to pay small amounts in cash. Usually the Petty cashier fills out the voucher and ensures that the person requesting the cash signs it. The petty cashier then disburses the money and files the voucher in the petty cash container.

(g) Cash Register Tape

A cash register tape is a machine for quick and accurate recording. This helps when recording volume of transaction. The machine automatically prints receipts on the tape for the customers each time a sale is made.