The Source Document

Each time a company makes a financial transaction, some sort of paper trail is generated. That paper trail is called a source document. If a small business writes a check out of its checking account for office supplies, for example, the source documents are the check and the office supplies receipt.

Why Source Documents Are Important

The source document is essential to the bookkeeping and accounting process as it is the evidence that a financial transaction occurred.

If a company is audited, source documents back up the accounting journals and general ledger as an indisputable audit trail. 

Keeping a source document for a business is just like keeping receipts for tax-deductible items for your personal taxes. If your taxes are audited, they provide the proof that you've made those purchases. The same is true for your business, but in business, you don't keep receipts only for tax-deductible expenses. You keep original documents for every financial transaction.

What Source Documents Provide

A source document describes all the basic facts of the transaction, such as the amount of the transaction, to whom the transaction was made, the purpose of the transaction, and the transaction date.

Here are a few examples of common source documents:

• a canceled check
• invoice
• cash register receipt
• computer-generated receipt
• credit memo for a customer refund
• employee time card
• deposit slip
• purchase order

How to Treat Source Documents

The source document should be recorded in the appropriate accounting journal as soon as possible after the transaction. After recording, all source documents should be filed away in some sort of system where they can be retrieved if and when they are needeD.
In certain instances, it may even be important to provide the chain of custody to be able to determine that the source document in question remained in your control.




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