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.
If your taxes are audited, the source documents provide the proof that you’ve made those purchases. The same holds for your business, but in business, you keep original documents for every financial transaction, not just charitable donations. A source document is an original document, such as an invoice or a canceled check, which contains essential details that will either support or substantiate a transaction.
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. 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. No, a journal entry is the official way of recording transactions in the books. All journal entries are based on source documents that serve as evidence of transactions. If your business regularly purchases inventory to be sold, then you’ll process POs.
If employee hours are being billed to customers, then it also supports the creation of customer invoices. The time card is an internal document that companies use for registering the working hours of the personnel and pay wages. The time card records the name of the employee, the working day, the entry time and the exit time. A receipt is a financial source document that provides proof that cash was transferred from one party to the other. 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.
Bank Deposit Slip
The pre-numbering of documents is particularly useful, since it allows a company to investigate whether any documents are missing. A bank statement is used to enter payments into the accounting system and match them to invoices. In most cases, photocopies of source documents are acceptable legally, which means source documents can be stored electronically and the originals destroyed.
- 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.
- Also, the credit note can be sent from the buyer to the seller, in response to receiving a debit note, to acknowledge a seller’s claim.
- The type of source document you should retain varies with the type of transaction you need to substantiate.
- Depending on the nature of your business, the types of source documents that you need to retain will vary.
- Retaining copies of your cleared checks ensures that you have proof that a transaction took place, in case there’s ever a question.
These credits can be for such transactions as payment for office supplies, meals, or stamps. It’ll also show your new balance, available credit, and the last day of the billing period. It’s important to reconcile your credit card statement to ensure that you haven’t missed any fraudulent charges, and it can serve as evidence that a particular purchase was made. This internal document generated by the vendor allows companies to keep track of the orders they fulfill.
How To Use Source Documents
Before joining FSB, Eric worked as a freelance content writer with various digital marketing agencies in Australia, the United States, and the Philippines. 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. Tim is a Certified QuickBooks Time (formerly TSheets) Pro, QuickBooks ProAdvisor, and CPA with 25 years of experience. 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.
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. 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.
Nowadays, these documents do not necessarily need to be a physical hard copy – they may be in a traceable electronic form. The article gives an overview of what are accounting source documents and what are their goals, content, and examples. 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. 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. Your bank account statement is an essential document because it helps you compare the bank’s records with your own.
Sales workflow documents include sales orders, packing slips, invoices, sales receipts, and bank deposit slips. They’re all crucial documents for creating a paper trail for your company’s transactions. You would keep source documents for your business just like you keep receipts for tax-deductible items for your taxes.
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. 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.