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6.2 Source Documents Accounting 11

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Source Documents As you have learned from Ch. 6.1, transactions are first recorded by accounting personnel as journal entries. But where is the information obtained? Bills Customer Receipts Purchases or Sales Invoices etc These papers are the records used by accountants to record transactions.

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Definition of Source Document Are papers/records that shows the nature of a transaction & provides all information needed to account for a transaction done by a business. Has to be something tangible (able to touch) & shows a contract between 2 parties. Cant be an I.O.U on a dinner napkin. Only exception is when there is an internal business dealing within a company. Ex. Owner withdraws money. There still needs to be some type of paper record.

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How long does a business have to keep Source Documents??? Most companies are required to keep documents for 3-7 years (depends on areas tax laws). They are kept for reference purposes, for locating errors, or proof of a transaction.

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Common Types of Source Documents 1.Cash Sales Slip 2.Sales Invoice 3.Purchase Invoice 4.Cheque Copies 5.Cash Receipts Daily Summary 6.Bank Advices

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For Our Example Assume you run a company named MASTHEAD MARINE.

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Cash Sales Slip Is a business form showing details of a transaction in which goods or services are sold to customer for CASH.

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Sales Invoice Many businesses do not deal directly with the general public & therefore do not normally have cash sales. These types of businesses usually make all their sales on account (A/R). For these types of transactions a Sales Invoice document will be used instead of a Cash Sales Slip.

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Purchase Invoice Are receipts for when a company makes purchases for goods/services. A company can purchase something in 2 ways: They pay Cash They pay on Account (A/P)

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Cheque Copies For most businesses, the most common method of making payments is by issuing a company cheque. The reason this is done is because cheques leave a paper trail or record of transaction. A CHEQUE COPY is a document supporting the accounting entry for a payment by cheque.

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Cheque Copies Cheques can be issued for many reasons: Cash purchases Payment of Staff Wages/Salaries Owners Withdrawals Payments on accounts for Purchase Invoices Etc A cheque by itself is NOT sufficient proof of a transaction, it must be accompanied with a receipt to prove purchase/payment

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Cash Receipts Daily Summary (Definition) Is a business paper that lists the money coming in each day from their customers. This document shows: Names of Customers Dollar Amounts What is being paid for in each case.

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Bank Advices There will be times when your Bank automatically initiates a change in your bank account or the business bank account. The bank must legally inform you of this by sending you a document called a Bank Advice.

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2 Types of Bank Advices Bank Debit Advice a bank document informing the business of a DECREASE made in the businesss bank account. Bank Credit Advice a bank document informing the business of an INCREASE made in the businesss bank account.

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GAAP COST PRINCIPLE States that the accounting for purchases must be at the cost price to the purchaser. You cannot change the value of an asset if it becomes more/less value after you purchase it. You record it on your books at the price you paid for it.

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Your Homework for Today Review Questions 1-25 on page 173 -174