Write down the meaning of the sources of document. Also, explain the importance of sources of documents.

Source documents are the written evidence of business transactions — they provide the evidence that an accounting system needs in order to record a transaction, and they also serve as evidence of the terms and conditions agreed upon between the business and the person or organization it deals with.

Meaning:

1. Written evidence of a transaction: every transaction that is recorded in the books must be supported by a document proving that it actually took place, and that document is the source document — the invoice, cheque, cash receipt, debit note, credit note, promissory note, deposit slip, payroll sheet and so on.
2. Both parties receive one: each party to a transaction receives some form of source document — at a cash register sale, for instance, the customer gets a sales receipt while the business keeps a running tape of all its transactions.
3. They need to be standardized: with standardized source documents the bookkeeper can easily identify and interpret the relevant information, which is why businesses use printed formats of a fixed design.
4. Not every event has a standard document: for events such as recognizing the financial consequences of a fire or the settlement of a lawsuit, no standard document exists, so some form of documentation must be generated internally.

Importance:

1. Basis for recording: they serve as the basis on which the transactions are recorded in the journal, subsidiary books and ledgers — without a document the entry has no support.
2. Validation of transactions: they validate the business transaction and authenticate that it actually happened, which protects the books from fictitious entries.
3. Legal evidence: being written and signed, they serve as evidence in the court of law in case of dispute between the parties.
4. Basis for taxation: they act as the basis for assessing tax, since tax authorities require documentary support for the income and expenses claimed.
5. Product or service information: they provide the details of the product or service involved — the variety, quantity, agreed price, discount, credit period and mode of payment or transportation.
6. Basis for adjustment and future reference: they act as the basis for adjusting transactions (such as returns supported by debit and credit notes) and work as future references and as proof of recording, which is essential for audit.

Hence, source documents are the starting point of the whole accounting process — every entry in the books traces back to one, and their absence would leave the accounts unverifiable, unauditable and legally indefensible.