6.2 Source Documents

1. 6.2 Source Documents Accounting 11

2. Source Documents • As you have learnedfrom Ch. 6.1, transactions are first recorded by accounting personnel as journal entries. • But whereis the information obtained? • Bills • Customer Receipts • Purchases or Sales Invoices etc… • Thesepapers are the records used by accountants to record transactions.

3. Definition of Source Document • Are papers/records that shows the nature of a transaction & provides all information needed to account for a transaction done by a business. • Has to besomething tangible (able to touch) & shows a contractbetween 2 parties. • Can’tbe an I.O.U on a dinnernapkin. • Only exception iswhenthereis an internal business dealingwithin a company. • Ex. Ownerwithdraws money. • There stillneeds to besome type of paper record.

4. How long does a business have to keep Source Documents??? • Most companies are required to keep documents for 3-7 years (depends on area’staxlaws). • They are kept for referencepurposes, for locatingerrors, or proof of a transaction.

5. Common Types of Source Documents • Cash Sales Slip • Sales Invoice • PurchaseInvoice • Cheque Copies • Cash Receipts Daily Summary • Bank Advices

6. For Our Example • Assume you run a company named MASTHEAD MARINE.

7. Cash Sales Slip • Is a business formshowingdetails of a transaction in whichgoods or services are sold to customer for CASH.

8. Title • Loremipsumdolorsitamet, consectetueradipiscingelit. Vivamus et magna. Fuscesedsemsed magna suscipitegestas. • Loremipsumdolorsitamet, consectetueradipiscingelit. Vivamus et magna. Fuscesedsemsed magna suscipitegestas.

9. Sales Invoice • Many businesses do not deal directlywith the general public & therefore do not normally have cash sales. • These types of businesses usuallymake all their sales on account (A/R). • For these types of transactions a Sales Invoice document willbeusedinstead of a Cash Sales Slip.

11. PurchaseInvoice • Are receipts for when a companymakespurchasesfor goods/services. • A companycanpurchasesomething in 2 ways: • Theypay Cash • Theypay on Account (A/P)

13. Cheque Copies • For mostbusinesses, the mostcommonmethod of makingpaymentsis by issuing a company cheque. • The reasonthisisdoneisbecausechequesleave a ‘papertrail’ or record of transaction. • A CHEQUE COPY is a document supporting the accounting entry for a payment by cheque.

14. Cheque Copies • Chequescanbeissued for manyreasons: • Cash purchases • Payment of Staff Wages/Salaries • Owner’sWithdrawals • Payments on accounts for PurchaseInvoices • Etc… • A cheque by itselfis NOT sufficient proof of a transaction, it must beaccompaniedwith a receipt to provepurchase/payment

16. Cash Receipts Daily Summary (Definition) • Is a business paperthatlists the money coming in eachdayfromtheircustomers. • This document shows: • Names of Customers • Dollar Amounts • Whatisbeingpaid for in each case.

18. Bank Advices • There willbe times whenyour Bank automaticallyinitiates a change in yourbankaccount or the business bankaccount. • The bank must legallyinformyou of this by sendingyou a document called a Bank Advice.

19. 2 Types of Bank Advices • Bank DebitAdvice • a bank document informing the business of a DECREASE made in the business’sbankaccount. • Bank CreditAdvice • a bank document informing the business of an INCREASE made in the business’sbankaccount.

21. Title • Loremipsumdolorsitamet, consectetueradipiscingelit. Vivamus et magna. Fuscesedsemsed magna suscipitegestas. • Loremipsumdolorsitamet, consectetueradipiscingelit. Vivamus et magna. Fuscesedsemsed magna suscipitegestas.

22. GAAP – COST PRINCIPLE • States that the accounting for purchases must beat the costprice to the purchaser. • You cannot change the value of an asset if itbecomes more/less value afteryoupurchaseit. • You record it on your books at the priceyoupaid for it.

23. YourHomework for Today • ReviewQuestions 1-25 on page 173 -174