Define source of documents. Write down the objectives of the source of documents.

Source documents are the original written evidence of business transactions. Every transaction, such as a purchase, sale, payment or receipt, is supported by a document, and accounting records are made on the basis of that document. Source documents provide the proof the accounting system needs to record transactions. They also act as evidence of the terms and conditions agreed between the business and the other party, and both parties usually receive a copy. At a cash-register sale, for example, the customer gets a sales receipt while the business keeps the register tape. Source documents should be standardized so that the bookkeeper can easily identify and interpret the information. For events without a standard document, such as a fire loss or a lawsuit settlement, a suitable document must be prepared.

The common types of source documents are:

1. Invoices and cheques: an invoice is issued by the seller for credit sales and shows the goods, quantity, price and terms. A cheque is used to make payments from a bank account.
2. Debit and credit notes: these are issued for goods returned, overpayments or allowances.
3. Bank statements, deposit slips and cash receipts: these are evidence of bank and cash transactions.
4. Other documents: cash register tapes, time cards, promissory notes, share certificates, utility bills (such as NEA electricity and water bills) and salary or payroll sheets.

The objectives of source documents are:

1. Basis for recording: source documents are the starting point of the accounting process. A transaction is recorded in the journal and books of account only when it is supported by a document.
2. Validation of transactions: they authenticate that a transaction actually took place, which prevents fictitious or false entries in the books.
3. Legal evidence: in a dispute with customers, suppliers, employees or others, source documents serve as evidence in a court of law.
4. Basis for taxation: documents such as VAT invoices, purchase bills and payroll sheets help the Inland Revenue Department assess income tax and VAT correctly.
5. Information about products and services: they give details of the goods or services involved, such as description, quantity, rate, discount and terms of payment.
6. Basis for adjustment: they act as the basis for adjusting or correcting transactions. For example, a credit note adjusts a customer’s account for goods returned.
7. Future reference: source documents are kept on file as proof of recording and can be checked whenever information is needed later.
8. Facilitating audit: auditors check entries against source documents (vouching) to confirm the accuracy and genuineness of the accounts.
9. Internal control and fraud prevention: because every entry must be supported and authorized by a document, the chances of errors, theft and fraud are reduced.
10. Fixing responsibility: signatures and approvals on documents show who authorized each transaction, which makes employees accountable.