Definition of Source Documents Financial Accounting SS 1

SOURCE DOCUMENTS

CONTENT

1. Definition of Source Documents
2. Examples of Source Documents
3. Features and Uses of Source Documents

NOTES

Definition of Source Documents

Source documents are instruments generated when businesses enter into transactions with others. They serve as written evidence of transactions, detailing the essential facts and forming the basis for preparing the books of account.

Every business transaction, whether cash or credit, must be supported by a source document. These documents are the original records used to verify transactions and ensure the accuracy of accounting records.

Examples of Source Documents

1. Receipt
2. Invoice
3. Cheque (or cheque stub)
4. Bank-paying-in-slip
5. Debit note
6. Credit note
7. Statement of Account
8. Vouchers

Features and Uses of Source Documents

1. Receipt
   • A receipt is issued to acknowledge that money or valuable property has been received. For example, when goods are sold for cash, the seller provides the customer with a receipt.
   • Uses: Used to verify cash transactions and as proof of payment.
2. Invoice
   • An invoice is prepared when goods are sold. It is sent by the seller to the buyer and serves as evidence of credit sales.
   • Types:
     • Sales Invoice: Retained by the seller.
     • Purchase Invoice: Retained by the buyer.
   • Contents: Includes details like supplier’s name and address, customer’s account number, invoice number, transaction date, goods description, terms of sale, payment terms, trade discounts, etc.
3. Cheque
   • A cheque is a written order to a bank to pay a specified amount to the named individual or business. It is evidence of payments made by cheque.
   • Uses: The cheque stub serves as the source document for recording payments.

OBJECTIVE QUESTIONS

1. A source document is a written record that provides evidence of a _______.
   a) Payment
   b) Business transaction
   c) Loss in business
   d) Business profit
   Answer: b
2. An instrument used to acknowledge receipt of money or goods is called a _______.
   a) Invoice
   b) Cheque
   c) Receipt
   d) Voucher
   Answer: c
3. A written document issued by the seller of goods to the buyer on credit is called _______.
   a) Debit note
   b) Credit note
   c) Invoice
   d) Receipt
   Answer: c
4. When a cheque is issued for payment, the source document is the _______.
   a) Bank slip
   b) Cheque or cheque stub
   c) Invoice
   d) Receipt
   Answer: b
5. A business document that reduces the amount owed by a customer is a _______.
   a) Debit note
   b) Credit note
   c) Statement of account
   d) Voucher
   Answer: b
6. The record of all transactions with a particular customer over a period is called a _______.
   a) Invoice
   b) Statement of account
   c) Credit note
   d) Receipt
   Answer: b
7. Which of the following is NOT a source document?
   a) Receipt
   b) Invoice
   c) Voucher
   d) Journal
   Answer: d
8. The document that records cash deposited into a bank is called _______.
   a) Paying-in-slip
   b) Cheque stub
   c) Receipt
   d) Credit note
   Answer: a
9. A business issues an invoice when goods are sold _______.
   a) On credit
   b) For cash
   c) With a trade discount
   d) Without terms
   Answer: a
10. A cheque is signed by the _______ of a business.
    a) Manager
    b) Accountant
    c) Customer
    d) Signatory
    Answer: d
11. Trade discounts are often indicated in _______.
    a) Cheques
    b) Invoices
    c) Receipts
    d) Debit notes
    Answer: b
12. Which source document records goods returned by the buyer?
    a) Debit note
    b) Credit note
    c) Invoice
    d) Receipt
    Answer: a
13. Payments made into a supplier’s account are evidenced by _______.
    a) Statement of account
    b) Invoice
    c) Bank-paying-in-slip
    d) Voucher
    Answer: c
14. A cheque is a written order to a _______.
    a) Supplier
    b) Customer
    c) Bank
    d) Accountant
    Answer: c
15. The key function of source documents is to provide _______ for accounting records.
    a) Evidence
    b) Errors
    c) Balance
    d) Discounts
    Answer: a

CLASS ACTIVITY DISCUSSION

1. What is a source document?
   A source document is written evidence of a business transaction.
2. Why are source documents important in accounting?
   They provide verification and support for accounting records.
3. Give three examples of source documents.
   Examples include receipts, invoices, and cheques.
4. What is the difference between a sales invoice and a purchase invoice?
   A sales invoice is retained by the seller, while a purchase invoice is retained by the buyer.
5. What details are included in an invoice?
   Details like supplier and customer names, transaction date, goods description, and payment terms are included.
6. What is the purpose of a receipt?
   A receipt serves as proof that money or goods have been received.
7. When is a debit note issued?
   It is issued when goods are returned to the supplier.
8. What is a credit note used for?
   To reduce the amount owed by a customer.
9. What is a cheque stub?
   A cheque stub is a counterfoil retained as proof of payment.
10. What is the purpose of a statement of account?
    It provides a summary of transactions with a customer over time.
11. What document records bank deposits?
    The bank-paying-in-slip.
12. What does a cheque instruct a bank to do?
    To pay a specific amount to a named person or business.
13. What is indicated in an invoice regarding payment?
    Terms of sale, including trade discounts.
14. How do source documents aid in auditing?
    They provide verifiable evidence of transactions.
15. Why must every transaction have a source document?
    To ensure the accuracy and reliability of financial records.

EVALUATION QUESTIONS

1. Define source documents.
2. List five examples of source documents.
3. Differentiate between a receipt and an invoice.
4. What are the contents of an invoice?
5. Explain the uses of a cheque stub.
6. Why is a credit note issued?
7. Describe the function of a debit note.
8. What is a statement of account used for?
9. Explain the importance of source documents in accounting.
10. What role do source documents play in financial auditing?