Source Document

Source Document

The transactions of the business are recorded in the books of accounts of the business on the basis of some evidences, usually written, which contains the key information about the name of the parties involved, amount of the transaction, date, Tax registration number (if any) etc. Such written evidences are known as source documents.

Explanation with example

Source documents are the written documents that capture the complete details of any business transaction including the details about the parties, amount involved, quantity of any goods supplied or purchased, date of the transaction etc. These details help the accountant to decide which account is debited and which one is credited. For example Cash memo, invoice, Salary slip, cheque, debit note, credit note etc. the source documents act as the evidences for any business transactions.The principle of objectivity & verifiability emphasize on source documents.

In case source document is not available for any business transaction like in case of petty expenses then a voucher(kalinkdena h next article ka) can be prepared recording the expenses made from that petty cash and after taking the approval from the concerned authority, that voucher can be treated as source document.

For example: When the consumer purchases goods from any vendor then that vendor issues bill, usually known as invoice, to the consumer. That invoice contains Name of the vendor, serial number, date, amount, quantity of goods purchased etc. That invoice issued by the vendor will act as a source document of sale for the vendor and at the same time, for the purchaser that invoice will act as source document of purchase.

Features of source document

  1. Source document is a written document.
  2. They support the transactions of the business as they contain all the key information about the transaction.
  3. Serial numbers, date, name of the party, amount of the transaction are usually present on every source document.
  4. Vouchers are mostly prepared on the basis of these source documents.
  5. Even the court of law asks for source documents as evidence in case of any dispute.
  6. The auditors need source documents to verify the authentication of the transaction as the source documents is the evidence that shows that the information/transaction reported is correct

Advantages of source document

The advantages of source document are as follows:

  • Main Evidence of business transaction:

Source documents are important evidence that supports any business transaction and the entries in the books of accounts are always based on the source documents which thereby reduce the chances of recording wrong information in the books of accounts.

  • Reduces Fraud & Errors:

The chances of frauds & errors are minimized as the proof of every business transaction is available in the form of source documents.

  • Important for Audits:

It is not possible to conduct Audits if source documents are not available because audit is all about inspecting business books of accounts and inspection is not possible without evidences. Therefore, source documents are very important for the audit

Disadvantages of source document

The disadvantages of source document are as follows:

  • May lack Accuracy:

There are chances that the source documents available are not complete and may lack important information which may result in the wrong input of the information in the books of accounts of business.

  • Difficult to obtain:

Sometimes it is difficult to obtain source document for every transaction. For example if a business purchases stationery worth $5 from small shop then there are chances that the supplier doesn’t give invoice and in cases like these source document may be missing.

  • Hard to read Handwritten documents:

In many cases when the supplier of goods and services works at small scale then there are chances that the supplier issues hand written invoice and not a printed one. Then in such a case wrong interpretation of information is possible.

Final Thought

Thus, Source documents are the written evidences of any business transaction that contains all the important details about the transaction on the basis of which accounting& auditing of any business is done

Related Articles

Source Documents Types | Definition | Commonly used types | Conclusion

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2 thoughts on “Source Document

  1. Thanks for explaning source document so precisely… your content and pictures are good. Keep posting more articles covering the financial accounting.. will surely recommend this site to my friends

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