What are source documentsand why does my business need them?

In very small businesses, such as those that buy everything for cash, the only record of purchases will be the till receipt for payment. You may well have encountered credit notes when shopping, such as when you return goods. When you have already paid for items, a credit note is offered to enable money to be taken off your next purchase. The invoice sets out the goods or services provided, gives the name and address of the purchaser and supplier, states the amount due (separately identifying any VAT), and normally gives a date or time limit for payment.

The same holds for your business, but in business, you keep original documents for every financial transaction, not just charitable donations. It accumulates hours-worked information from employee timesheets, which is then included in customer invoices that in turn result in the creation of a sale and accounts receivable transaction. Thus, in this situation, the timesheet is the source document for a sale transaction. Bank statements are important because they summarize all of the transactions that have taken place in a bank account during a specific period.

.css-g8fzscpadding:0;margin:0;font-weight:700;How long should you hold onto source documents?

Fourth, Maiden checks the invoice against the purchase order and possibly the dispatch note. The aim is to ensure that the goods were genuinely ordered and have been received. However, larger businesses need more formal systems to ensure that purchases are authorized by the right person and that payments for goods are only made when they have been received and checked.

They may be the only record of certain transactions, such as payments made directly into the bank account of a supplier by a customer through the banking system (a BACS transfer). Note that the purchase order and dispatch note are not records from which accounting transactions should be entered. For most retail businesses, however, the source document that accountants will work from is the till roll. This shows the total amount taken in for goods and services, whether by cash, check, or card. In most circumstances, photocopies of source documents are legally acceptable.

Document Storage

A source document is the original document that contains the details of a business transaction. A source document captures the key information about a transaction, such as the names of the parties involved, amounts paid (if any), the date, and the substance of the transaction. Source documents are frequently identified with a unique number, so that they can be differentiated in the accounting system.

It’s important to devise an organized filing system to ensure your supporting paperwork is available for reference. CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst. Encourage students to speculate about each source, its creator, and its
context. Our goal is to deliver the https://kelleysbookkeeping.com/how-letters-of-credit-work/ most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. A similar adjustment will have to be made in the books of Maiden to reflect the fact that they still owe Acme the price of the CDs.

What is a Source Document?

Successful student interactions with primary sources require careful primary source selections and lesson planning. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Source Documents Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.

Various regulations mandate that some source documents be retained for a number of years. It may also be prudent to retain these documents irrespective of regulations, if only to provide evidence in the event of a lawsuit, or to provide better customer service. For these reasons, a company should adopt a document destruction policy that strictly controls the shredding or other form of elimination of source documents until a certain number of years have passed.

What is a source document?

In the business world, credit notes are raised before the bill is paid most of the time, so the amount is taken off the amount paid for the current purchase. The key source document relating to credit sales made by the business is the invoice. In the majority of cases, photocopies of source documents are legally permissible. According to the US Internal Review Service (IRS), as long as these photocopies are complete, legible, and accurate representations of the original document, they are legally acceptable. For evidentiary purposes, electronic images of source documents are generally acceptable, though paper-based documentation may still be required in some cases.

• Source documents detail the basic facts of a transaction—amount, date, payee and purpose.
• Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.
• Before recording a business transaction in your business’s accounting books, you must be sure that you’re reporting the correct transaction date, payer, payee, and amounts.
• The same holds for your business, but in business, you keep original documents for every financial transaction, not just charitable donations.
• If there is any question regarding the retention period for a document, consult with a knowledgeable attorney.
• Note that the purchase order and dispatch note are not records from which accounting transactions should be entered.