Proof of funds

Proof of funds

source documents

After deciding the head of accounts to be debited and credited, vouchers are prepared. Usually, blank forms are readily available in the printed form in the market. In this chapter we have discussed source documents, their uses and their relationship to the books of original entry. We also examined the importance of the books of original entry and illustrated how they are to be transferred to the ledger accounts.

Sales day book is the book of original entry that records credit sales. The source document is the duplicate of the invoice issued to the customer. The volume of daily sales normally demands that it is issued first to collate a period’s sale before being transferred to sales ledger accounts.

Source documents are used to record transactions because they are original and show an objective report of the economic activities of each transaction. This document gives the buyer’s accounting department an objective and reliable record of the purchase transaction. It also gives the vendor a document that can used to record the sale of goods.

What is a source document?

On the basis of cash memos, these transactions are then recorded in the book of accounts. In audit, the foremost duty of the auditor is to verify the cash book with reference to the cash vouchers. Sales and purchases are the main features of any business enterprise. For recording cash sales and cash purchases, cash memos serve as source documents.

A purchase invoice serves as the source document to record in the purchases day book. As explained in the last paragraph, the purchases invoice is the original of the sales invoice sent by the supplier to the customer. Therefore, the sales invoice and the purchases invoice contains the same details. The only difference is that purchases invoices are in the books of buyer and are received from various customers and therefore will not be re-numbered because goods are purchased from different sources. In the last chapter we said that the historical cost concept makes financial transactions to be objective because they can be traced to source documents.

What is the purpose of a source document?

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 the past, source documents were printed on paper.

source documents

The counterfoil of the pay in slip becomes a source document, which acts as an evidence for the customer to record this transaction in the books of accounts. Source documents detail the particulars of transactions that include the date, name, address, terms, and product description among other relevant pieces of information. Types of source documents include cash receipts, canceled checks, invoices and timesheets.

Debits and credits are instead being logged in an accounting system to keep track of inventories shipped and payments owed. Some common examples of source documents include sales receipts,checks, purchase orders,invoices,bank statements, and payroll reports. These are all original documents that were created from a transaction and the first component in anaccounting system. Additionally,auditorscheck theannual financial statementsof a business to ensure their accuracy.

In this chapter, we shall explain those source documents, their importance and the books of original entry to which they relate. The book of original entry is the accounting record in which transactions are first recorded from source documents. The documents prepared for the purpose of recording business transactions in the books of accounts are known as vouchers. For recording business transactions in the books of accounts, source documents are further analyzed and conclusion is drawn as to which account is to be debited and which account is to be credited. The document on which this conclusion is written is known as voucher or accounting voucher.

Whether a debit note or invoice is used, it’s important that all pertinent information be included on the document so it can be used in the accounting process in the future. In this topic, you studied source documents and the information contained and also the books of original entry their content and uses.

Two examples of source documents are copies of invoices to customers and from suppliers. Source documents are critical in that they provide an audit trail in case you or someone else has to go back and study financial transactions made in your business. For instance, a customer might claim that he never received an invoice from you. And your source documents are a required component for your accountant at tax time.

Cash memo is a source document in which all transactions pertaining to cash sales or purchases are to be recorded. In most organizations all cash received must be paid to the bank and all cash payments must be made through the bank, (except petty cash that is operated through the imprest system). Therefore for many businesses, cheque counterfoils have become major source documents for recording in the bank column of the cash book (Credit side).

  • Sales day book is the book of original entry that records credit sales.
  • The volume of daily sales normally demands that it is issued first to collate a period’s sale before being transferred to sales ledger accounts.

You learned to identify different source documents and transfer the information from these source documents to the relevant books of original entry. Table 2.1 above shows the link between the books of original entry and the source documents.

2.Purchase Journal (Day Book)is used to record the credit purchases of goods normally traded by the business. The information from the purchases invoice is transferred to the purchases journal or day book. 1.Sales Journal (Day Book)is used to record the credit sales of goods normally traded by the business.

Source documents

The purchases day book is the book of original entry used to record all credit purchases. The total therein is transferred to the debit of the purchases ledger at regular intervals. The period may be daily, weekly or monthly depending on the volume of purchases transactions. Business transactions in the books of accounts are available in the source documents. These documents are further analysed and conclusion is to be drawn about which account is to be debited and which account is to be credited.

Typically if a transaction involves outside parties i.e. people who are not part of the entity, both the entity and the outside party obtain copies of the transaction. Debit notes and invoices are used in the accounting process to help businesses track sales. While debit notes deal with accounts receivables, invoices deal mostly with completed sales in which money has already changed hands.

What are business source documents?

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 the past, source documents were printed on paper.

Source Documents

The information from the sales invoices is transferred to the sales day book. The books of original entry consist offive Journals or Day Booksand theCash Book. A credit note is a document which shows that the business enterprise has given the credit to the party to whom this document is sent in respect of any business transaction other than credit purchase. When a business enterprise receives back the goods sold earlier then it makes a credit note in favour of the purchaser showing that his account has been credited in the books of business enterprise.

The bank clerk signs, stamps the counterfoil of the pay in slip and returns it to the depositor. Usually, the large business enterprises obtain the complete bunch of pay-in-slips and get them all bound in a book.

You can now have a further look at the links between the source documents and the books of original entry. number or quantity purchased/sold, price, discount received or allowed and sales tax collected or deposited are provided.

Source documents may be paper-based business forms or electronic documents and are used for initial input to the accounting system. These books are also referred to as books of prime entry or subsidiary books or day books or journals. Transactions can be recorded directly to the ledger but the books of original entry are in use because they have the following advantages which the ledger does not have.

Other examples of source documents include canceled checks, utility bills, payroll tax records and loan statements. The general ledger is not considered a book of original entry, if it only contains summarized entries posted to it from one of the underlying accounting journals. However, if transactions are recorded directly into the general ledger, it can be considered one of the books of original entry. A debit note, also known as a debit memo, is generally used in business-to-business transactions.

Such transactions often involve an extension of credit, meaning a vendor sends a shipment of goods to a company before the cost of the goods is paid by the buyer. Although real goods are changing hands, real money is not being transferred until an actual invoice is issued.

A debit note is information regarding a past transaction that remains unpaid, whereas an invoice records a sales transaction that has been completed. Debit notes are based on accounts receivable accounts, while invoices are used for sales for which payment has already been made.

byann