Bookkeepers need source materials to construct accounting records. These records indicate transaction financials.
Source Document Types
This section introduces and describes the source documents. They have different shapes and sizes but fall into three types.
The invoice is the main source document for company credit sales.
A firm issues an invoice when it delivers goods or services and allows the buyer to pay (credit sale).
The invoice lists the goods or services, the buyer and seller’s names and addresses, the amount payable (including VAT), and a payment date or deadline.
However, what if a consumer complains that you only sent 900 units despite billing them for 1,000?
The customer may issue a debit note. A debit note specifies the gap and the customer’s proposed bill reduction.
If the complaint is justified, the business issues a credit note regardless of whether the consumer files a debit note.
Credit notes look like invoices but lessen the customer’s debt to the firm.
Shopping and returning items may have involved credit notes. After paying for things, a credit note is presented to deduct on your future purchase.
In business, credit notes are usually raised before the bill is paid, so they are deducted from the current transaction. The principle remains the same.
The customer receives the original invoices and credit notes. You may be working from a copy or a computer listing accounting system transactions.
The vendor may send monthly accounts of the amount owing or reminders for outstanding invoices, which are not invoices but may seem similar.
Businesses that sell mostly cash may nevertheless prepare invoices or receipts, which are identical.
Most retail enterprises use the till roll as their accounting source. This shows the total cash, check, or card payment for goods and services.
Small firms that buy things cash will only have the till receipt as proof of purchase. Petty cash slips may accompany cash payments.
Larger firms need more formal systems to verify purchases and pay for products when they are received and examined.
Imagine Maiden Megastore ordering 5,000 Acme Artistes CDs. These actions are taken:
Maiden creates a purchase order. This form indicates the 5,000 CDs to be given and the agreed-upon price to Acme.
Maiden management must approve the purchase order.
Second, Acme ships the 5,000 CDs with a dispatch notice detailing the package. Maiden approves after checking the order.
Third, Acme bills Maiden for the 5,000 CDs.
Fourth, Maiden compares the invoice to the purchase order and probably shipment notice. The goal is to verify that the goods were ordered and received.
An unethical merchant may pay firms from a trade telephone directory for non-existent goods or services and get compensated if the system failed.
If the shipment fails, debit and credit notes may be issued.
Fifth and last, Maiden sends Acme a check for the amount owed, potentially after Acme issues a statement of the account. A payment slip torn from the invoice is usually used.
In business, Acme rarely issues a receipt for cash received in response to an invoice. Acme will pay the check into the bank after deducting the payment from Maiden’s debt.
Purchase orders and dispatch notes are not accounting documents. They don’t generate or meet financial obligations.
They help calculate accruals (i.e., operational expenses owing at the end of a period) for final accounts, but their major purpose is to alert you to their presence and help you avoid mistaking them with other papers.
The final source document for accounting records is banking paperwork. You’ll recognize most from personal banking.
Accounting records require bank statements.
They may be the only record of transactions like BACS transfers from customers to suppliers. Other times, they summarize information from elsewhere.
Two records will be created for check payments. Customers should have a counterfoil check stub in their checkbooks.
The supplier must have a completed paying-in slip stub/counterfoil in the book to prove bank check payment. The customer’s bank may dishonor checks.
Returned checks go to the source who paid them. Markers indicate drawers.
In the preceding scenario of Maiden Megastore, Acme, and the 5,000 CDs, the check from Acme was put into the accounting records, therefore Maiden now owes nothing.
Returning a cheque without honoring it is pointless. Acme must also reverse the payment in its books. This shows Maiden still owing for the 5,000 CDs.
Since Maiden still owes Acme for the CDs, they must update their books accordingly.