What are accounting source documents?

Summary

This script offers an insightful overview of accounting source documents, which serve as proof of economic transactions and are essential for recording and verifying transactions in accounting ledgers. It outlines the goals, content, and types of these documents, including invoices, receipts, and purchase orders, and emphasizes the importance of retaining them as per legal regulations. It also discusses the categorization of documents as internal or external and the necessity for companies to have policies for document retention and destruction.

Takeaways

• 📑 Accounting source documents serve as proof of economic transactions and are essential for recording and verifying transactions in accounting ledgers.
• 📈 They are required to validate various transactions such as purchases of raw materials, shipping products, online sales, and service subscriptions.
• 🎯 The primary goals of these documents are to provide evidence of transactions, notify parties of economic activities, describe transactions for bookkeeping, and assist in tax calculation and reporting.
• 📝 Essential elements of accounting source documents include the transaction date, reference number, names of involved parties, transaction description, document type, and details of items or services with quantities and currency.
• 🗂 Companies must retain these documents for several years as per local legal regulations, and may choose to keep them longer for additional security or utility.
• 🔒 Each company should have a policy for the secure destruction of these documents to control their elimination over time.
• 🏢 Documents can be categorized as internal or external, with external documents often considered more crucial as they provide proof of transactions with external parties.
• 🧾 Common types of source documents include invoices, cash receipts, purchase orders, sales orders, delivery notes, goods received notes, debit and credit notes, time cards, and bank statements.
• 💼 An invoice is issued by a company when selling products or services, detailing the transaction and providing a copy for both the buyer and seller.
• 💳 A cash receipt verifies the transfer of cash between parties and includes details such as the transaction amount and currency.
• 🛒 A purchase order is a binding agreement from the buyer to the seller, specifying the items, quantities, price, delivery, and payment terms.
• 📦 A delivery note accompanies shipped goods, providing proof of delivery and including details about the transaction and the parties involved.

Q & A

What are accounting source documents?

Accounting source documents are records that provide proof of an economic transaction. They are the basis for information recorded in accounting ledgers and are used to verify the validity of transactions.

Why are accounting source documents necessary?

They are necessary to provide proof of a transaction's occurrence, to record and notify parties of an economic transaction, to describe the transaction for bookkeeping, and to calculate and report taxes.

What are the minimum requirements for an accounting source document?

At a minimum, accounting source documents must contain the date of the transaction, a reference number, the names of the involved parties, a description of the transaction, the type of document, and details about the items or services, quantities, amounts, and currency.

How long must a company retain accounting source documents according to local legal regulations?

The retention period varies according to local legal regulations, but companies must have a policy for retaining these documents for several years.

What are the benefits of keeping accounting source documents for longer than the legal requirement?

Keeping documents longer can be useful for providing evidence in internal consultations, lawsuits, or to enhance customer service.

What is the purpose of a company's source document destruction policy?

The policy helps organizations control the elimination of documents after a certain period, ensuring compliance and orderly document management.

How can accounting source documents be categorized?

They can be categorized as internal or external, depending on whether they were generated within the company or received from another party.

Why are external source documents considered more important?

External source documents are considered more important because they provide proof of a transaction with another party, which is essential for accurate accounting.

What is an example of an external source document?

An example of an external source document is an invoice issued by a seller when a company purchases a product or service.

Can you provide an example of an internal source document used in accounting?

An example of an internal source document is a time card, which companies use to register working hours of personnel for wage payment.

What is the role of a bank statement in accounting?

A bank statement is used to enter payments into the accounting system and match them to invoices. It is crucial for verifying the accuracy of payments and transactions during an audit.

Outlines

00:00

📑 Accounting Source Documents Overview

This paragraph introduces accounting source documents, which serve as evidence of economic transactions and are crucial for recording information in accounting ledgers and verifying transaction validity. It explains the necessity of these documents for various transactions such as purchases, shipments, online sales, and service subscriptions. The paragraph outlines the goals of these documents, including providing proof of transactions, notifying parties, describing transactions for bookkeeping, and calculating taxes. Essential elements of source documents are listed, such as transaction date, reference number, involved parties' names, transaction description, document type, and transaction details like quantities and currency. It also touches on legal requirements for document retention and company-specific security policies, as well as the importance of document destruction procedures. The paragraph categorizes documents as internal or external, with external documents often considered more significant for proving transactions with other parties. Common source documents like invoices, cash receipts, and purchase orders are described, detailing their purposes and the information they contain.

05:03

🚚 Delivery and Transaction Documentation

The second paragraph delves into specific types of accounting source documents related to the delivery and receipt of goods and services. It describes the delivery note, which serves as proof of goods delivery, including details like parties' names, delivery location, date, and item descriptions. The paragraph also explains the goods received note (GRN) issued by the buyer, which mirrors the delivery note but is used to match received goods with vendor invoices. The debit note is discussed in two contexts: from the buyer to the seller for non-payment or refund requests, and from the seller to the buyer for increased payable amounts. The credit note is another document that signifies a refund or non-payment obligation, either from the seller to the buyer for returned goods or from the buyer to the seller in response to a debit note. The paragraph concludes with descriptions of the time card, used for recording employee work hours, and the bank statement, which is vital for entering payments into the accounting system and matching them to invoices, ensuring audit readiness.

Keywords

💡Accounting Source Documents

Accounting source documents are essential records that provide proof of economic transactions. They form the basis for entries in accounting ledgers and verify the validity of transactions. In the video, these documents are crucial for ensuring the accuracy of financial records and are used to support various transactions such as purchases, sales, and service subscriptions.

💡Economic Transaction

An economic transaction refers to any exchange of goods, services, or money that has a financial impact on a business. The video script mentions several examples, such as a company purchasing raw materials or an e-commerce business selling a product online, highlighting the importance of documenting these transactions for accounting purposes.

💡Ledgers

Ledgers are books or systems used by accountants to record financial transactions. They are mentioned in the script as the destination for the information derived from accounting source documents, serving as the official record of a company's financial activities.

💡Proof of Transaction

The concept of proof of transaction is central to the video's theme. It refers to the evidence needed to confirm that a transaction has occurred. The script explains that accounting source documents serve this purpose, such as invoices and receipts, which validate the transactions for accounting and legal purposes.

💡Tax Calculation

Tax calculation is the process of determining the amount of tax owed based on financial transactions. The script mentions that accounting source documents are used to calculate and report taxes, emphasizing their role in compliance with fiscal regulations.

💡Retention Period

Retention period refers to the length of time that companies are required to keep their accounting source documents according to legal regulations. The script notes that companies must retain these documents for several years, which is important for legal and financial audits.

💡Internal and External Documents

The script distinguishes between internal and external accounting source documents. Internal documents are generated within the company, while external ones come from outside parties, such as a seller. External documents are highlighted as particularly important as they provide proof of transactions with other entities.

💡Invoice

An invoice is a key accounting source document mentioned in the script. It is issued by a company when selling products or services and includes details such as the description of the product, the parties involved, the date, and the price. Invoices serve as a record of the transaction and a request for payment.

💡Purchase Order

A purchase order is a document issued by a buyer to a seller, indicating a request for goods or services. The script explains that it becomes a binding agreement once accepted by the seller and includes details like item descriptions, quantities, price, and delivery terms.

💡Delivery Note

A delivery note, as described in the script, is a document accompanying a shipment of goods that provides proof of delivery. It includes information such as the names of the parties, delivery location, date, and descriptions and quantities of items, serving as a crucial record for both the sender and receiver.

💡Goods Received Note (GRN)

The Goods Received Note (GRN) is a document issued by the buyer to confirm the receipt of goods. The script mentions that it includes similar information to a delivery note, such as the parties' names, item descriptions, quantities, and delivery location, and is used to match received goods with invoices.

💡Debit Note

A debit note is a document that can be sent from the buyer to the seller, or vice versa, to notify of changes in the amount payable. The script explains its use in cases of returned goods or adjustments to the original invoice, serving as a formal request for additional payment or a claim for a refund.

💡Credit Note

A credit note is issued by the seller to indicate that the buyer does not need to pay for returned products or that a refund is owed. The script also mentions that a credit note can be sent by the buyer to the seller in response to a debit note, acknowledging the seller's claim.

💡Time Card

A time card is an internal document used to record employees' working hours for wage calculation. The script describes its evolution from traditional paper cards to modern systems like magnetic cards or fingerprint records, showing its relevance in payroll accounting.

💡Bank Statement

A bank statement is used to record payments and match them to invoices within the accounting system. The script highlights its importance during audits to verify the accuracy of recorded payments and to identify the parties involved in financial transactions.

Highlights

Accounting source documents provide proof of economic transactions and are essential for verifying their validity.

These documents are necessary for recording transactions in accounting ledgers and are used for tax calculation and reporting.

Examples of transactions that require accounting source documents include purchases of raw materials, product shipments, online sales, and service subscriptions.

The goals of accounting source documents are to provide transaction proof, record economic events, describe transactions for bookkeeping, and support tax calculations.

Essential elements of accounting source documents include the transaction date, reference number, names of involved parties, and transaction description.

Source documents must also include details about the items or services, quantities, amounts, and currency involved in the transaction.

Companies are legally required to retain source documents for several years as per local regulations.

Beyond legal requirements, companies may choose to retain documents longer for internal consultation, legal disputes, or enhanced customer service.

Every company should have a procedure for the destruction of source documents to control their elimination over time.

Accounting source documents can be categorized as internal or external, with external documents often considered more crucial for transaction proof.

Without proper external source documents, such as payment documents, accountants cannot record transactions in the books.

Businesses must record every economic transaction and maintain sufficient evidence to support them.

Invoices are issued when a company sells products or services, showing product description, parties involved, date, quantity, and price.

Cash receipts provide proof of cash transfers between parties, including names, date, amount, and currency.

A check from a cash register serves as proof of purchase payment, whether in cash or by card.

Purchase orders are binding agreements between a buyer and a seller, detailing the requested items, quantities, price, delivery, and payment terms.

Sales orders are generated by sellers to confirm purchase orders, specifying product details, price, quantity, delivery, and party information.

Delivery notes accompany shipments, providing proof of delivery with details on parties, location, date, and items quantities.

Goods received notes are issued by buyers to match received goods to invoices and show transaction details.

Debit notes are used for transactions involving returned goods or increased payable amounts, serving as a request for payment adjustment.

Credit notes indicate refunds or adjustments in payable amounts when products are returned or changes are made to original invoices.

Time cards are internal documents for recording employee working hours and are evolving from traditional paper to digital formats.

Bank statements are crucial for entering payments into the accounting system and verifying transactions during audits.

Transcripts

What are accounting source documents? The episode  gives an overview of what are accounting source  

documents and what are their goals, content, and  examples. An accounting source document provides  

proof of an economic transaction. They are the  source of the information that is recorded in  

the accounting ledgers, and they are used  to verify the validity of the transactions.  

Accounting source documents are required, for  example, to prove the following transactions:  

A manufacturing company purchased and paid for  raw material. A company shipped products to a  

customer. An e-commerce business sold a product  online. A user paid for a service subscription.  

The aims of creating and keeping accounting  source documents are: To provide proof that  

a transaction occurred. To record and let the  other party know that an economic transaction  

occurs. To describe the economic transaction in  bookkeeping. To calculate and report the taxes.  

In all cases, the accounting source documents must  contain at least: The date of the transaction. A  

reference number. The names of the involved  parties. The description of the transaction.  

The type of source document (i.e. an invoice, a  check). The description of the items or services.  

The quantities, amounts, and  the currency of the transaction.  

According to local legal regulations,  a company must retain source documents  

for several years. Beyond these requirements,  each company dictates its own security policies.  

It may be convenient to keep these documents  for longer. It may be useful in the future to  

provide evidence in case of internal consultation,  a lawsuit, or to provide better customer service.  

Likewise, every company must have a procedure  about the source document destruction policy.  

This procedure helps organizations to control  the elimination of such documents for a certain  

period of time. Accounting source documents can  be categorized also as internal or external,  

depending on if they were generated within the  company, or received from another party (e.g.  

seller of goods). Generally, external source  documents are considered more important,  

as they provide proof that your company did have  a transaction with another party. For example,  

if your company purchased something, but does  not have any payment documents from the seller,  

then the accountant does not have the right to  record such entry in the books. Every business  

must record every economic transaction on their  books and have enough evidence to support it.  

Some common source documents  used are described below:

Invoice When a company sells any product or  service to another party, it issues an invoice or  

a bill. The invoice shows the description of the  product, the parties involved in the transaction,  

the date, the quantity and the price. Any time an  invoice is issued there is a copy for the buyer  

and another for the seller. Cash receipt  A receipt is a financial source document  

that provides proof that cash was  transferred from one party to the other.  

The receipt contains the names of the  two parties involved in the transaction,  

the date, the amount of money transferred and  the currency. For example, when a person or a  

company pays for a product, a cash receipt  is supplied as proof of money transferred.  

A check from a cash register The check printed  from a cash register provides proof that a  

purchase was paid for in cash or by card. Purchase  order A purchase order is a source document issued  

by the buyer to the seller. Initially, it requests  a product or a service, but it is a binding  

agreement once the seller accepts the purchase  order. Sometimes the purchase order comes after  

a previous process of negotiation. During that  stage, both parties, the buyer and the seller,  

agree on the terms and conditions. A purchase  order contains the description of the items,  

the quantities to purchase, the price,  the delivery dates, and the payment terms.

Sales order A sales order is a document generated  by the seller upon receiving a purchase order  

from a buyer. To accept the purchase order, the  seller issues an order confirmation specifying the  

product details: the product or service with the  price, the quantity, the delivery terms, and the  

seller and buyer details. Based on the sales older  the seller can generate an invoice for the buyer.  

Delivery note The delivery note is a document that  is sent together with a shipment of goods that  

provides proof that the goods or products have  been delivered. The delivery note usually shows  

the names of the parties, delivery location, the  date, and the descriptions and quantities of items  

in the transaction. A copy signed by the buyer  is returned to the vendor as proof of delivery.  

Goods received note The goods received note (GRN)  is like the delivery note, but in this case,  

it will be issued by the buyer. It also shows the  name of the parties involved in the transaction,  

the description, the quantities of items in the  transaction, the date, and delivery location.  

The goods received note can be sent to the  seller when the transaction has been completed.  

It is used to match received goods  to invoices received from vendors.

The debit note can be sent from the buyer to the  seller together with returned goods. In this case,  

the buyer notifies the seller that they do not  intend to pay for the goods if purchased on  

credit, or they expect a refund or credit from  the seller if goods have already been paid for.  

Also, the debit note can be sent from the  seller to the buyer when the amount payable  

by the buyer increases. In this case, the seller  notifies the buyer that in their accounts they  

have increased the amount what the buyer owes to  the seller. Formally, it can serve as a request  

for extra payment from the buyer, e.g. when  there were changes to the original invoice.

Credit note The credit note can be sent by the  seller when the buyer has returned the product to  

the seller, fully or partially. In this case, the  credit note indicates that the buyer does not need  

to pay for these products if purchased on credit,  or that the seller now owes the buyer a refund,  

if the buyer already paid for the products.  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.

Time card 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. The time card has evolved over time,  

from the traditional paper time card to  the magnetic card or fingerprint records.

Bank statement A bank statement is used to enter  payments into the accounting system and match them  

to invoices. During an audit, the bank statement  allows to verify that the payments entered into  

the accounting system, the movements shown in  the bank accounts in the company’s records,  

actually happened, and show who  the receiving/sending party was.