All source documents should be stored, either physically or electronically, for future reference. Every time a business is involved in a financial transaction, a paper trail is generated. Small business accounting includes a variety of paperwork used to create the company’s financial statements. Purchase orders, invoice source documents, and receipts form the backbone of the accounting books, containing all relevant details regarding each transaction.
- Similarly, the Canadian Revenue Agency (CRA) accepts scanned documents as long as the records are produced and retained in paper format or stored in an electronically accessible and readable format.
- After the initial recording, all documents should be preserved and organized into a file and put into a system so they can be retrieved at any time.
- This source document is proof that the seller fulfilled the order and the client paid the balance.
- Receipts should be matched to checking and credit card statements and the petty cash log.
These internal documents detail the dates and amounts of your purchase so that you can manage your expenses. Sometimes, the supplier will issue this document to you, or you can create it yourself. After the PO is approved, the vendor will begin the order fulfillment process and return an invoice. An invoice is a bill that’s drawn for customers after purchasing goods or receiving services by the business.
.css-g8fzscpadding:0;margin:0;font-weight:700;How long should you hold onto source documents?
Source documents are critical to auditors, who use them as evidence that recorded transactions actually occurred. A source document is also used by companies as proof when dealing with their business partners, usually in regard to a payments. Examples of source documents are cancelled checks, credit memos, deposit slips, expense reports, invoices, material requisition forms, purchase orders, time cards, and sales receipts. It’s important to record any information that’s generated through source documents in either your company’s journal, accounting software, or financial books. After the document has been recorded, it should be organized in a file so that it can be retrieved at any time. Ideally, you’ll also keep a record of internal control procedures that specifies who in your company can access and authorize payments, orders, and other transactions.
They may represent a bill for ongoing services or can be based on purchase orders for specific items and services. Keeping a copy of each vendor invoice ensures that you have a record of your expenses and can also keep track of upcoming due dates. Once the period of limitations has ended and you no longer need your source documents, you should dispose of them securely. Shred all physical paperwork and ensure your cloud storage is empty, making room for more recent documents. Source documents are, first and foremost, important to the bookkeeping and accounting process because they serve as physical evidence that a financial transaction actually occurred.
- Nowadays, these documents do not necessarily need to be a physical hard copy – they may be in a traceable electronic form.
- Tim is a Certified QuickBooks Time (formerly TSheets) Pro, QuickBooks ProAdvisor, and CPA with 25 years of experience.
- It’s important to retain and organize these documents to research problems or questions that arise concerning transactions.
- Once the information in a source document has been recorded in the accounting system, the source document is indexed for easy access and archived.
Good bookkeeping software will generate these source documents for you as you progress through the sales process. See our guide of the best small business accounting software to find one that’s right for your business. The type of source document you should retain varies with the type of transaction you need to substantiate. Just as there are different source documents for personal finances and business, there are specific source documents for accounting. These documents prove not only that a transaction took place but also that a business rendered goods or services. Similarly, the Canadian Revenue Agency (CRA) accepts scanned documents as long as the records are produced and retained in paper format or stored in an electronically accessible and readable format.
Originality of Source Documents
This is all the information needed to create an accurate accounting entry. Eric is a staff writer at Fit Small Business and CPA focusing on accounting content. He spends most of his time researching and studying to give the best answer to everyone. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you.
Your bank account statement is an essential document because it helps you compare the bank’s records with your own. By reconciling your account statement each month, you’ll be able to identify and resolve any discrepancies and ensure that your accounting is accurate. A packing slip is an internal document that includes a complete list of items included in a package. If you’re shipping a product to a customer, saving the packing slip enables you to prove that the purchase took place and was fulfilled. If your business has employees, maintain copies of their timesheets and expense reports as a backup in case there’s ever a question about the accuracy of a transaction.
What Are the Types of Source Documents in Accounting
Often, businesses will bill their clients for time or expenses that were incurred by their employees. These documents serve as proof and can be attached to invoices that are sent to the client. A credit card statement is a summary of how you used your credit card during a billing period. The summary includes your payments, credits, purchases, cash advances, balance transfers, fees, interest charges, and amounts past due.
Nowadays, these documents do not necessarily need to be a physical hard copy – they may be in a traceable electronic form. Once the information in a source document has been recorded in the accounting system, the source document is indexed for easy access and archived. Documents generated within the past year are generally stored on-site, with older documents being stored in less expensive off-site storage facilities. There are a few things to consider when using source documents, which include how they’re stored, the formats that are acceptable, and how long the documents should be retained. Having source documents readily available will make the reconciliation process easier and more accurate. It’ll also help to gather clean data that can be translated into business insights.
Packing Slip
Many businesses and government agencies also use the IRS standard of complete, legible, and accurate reproductions of original documents. A timesheet is a data table that an employer can use to track the time that a particular employee has worked during a certain period. Businesses use timesheets to record time spent on tasks, clients, or projects. There are different methods to record timesheets, such as paper, spreadsheet software, and online time tracking software.
All journal entries are based on source documents that serve as evidence of transactions. It’s essential that the auditor has access to a clear paper trail of all transactions to confirm the accuracy of bank and credit card balances. This enhances transparency and ensures that the audit will run more smoothly. In its most basic form, it acknowledges that a seller has been paid for goods or services. It’s provided only after the goods have been transferred or services have been rendered and the client has paid in full.
A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting system. In most cases, photocopies of source documents are acceptable legally, which means source documents can be stored electronically and the originals destroyed. The IRS has accepted photocopies of receipts since 1997—as long as they’re legible and contain all of the information present in the original.
Sales receipts are internal documents for sellers and external documents for buyers. 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. The pre-numbering of documents is particularly useful, since it allows a company to investigate whether any documents are missing.
