Source Documents

Definition

Source documents are the original records of a business transaction, providing the first written evidence of the transaction's occurrence. These documents serve as the foundation for recording and tracking financial activities within an accounting information system.

5 Must Know Facts For Your Next Test

1. Source documents provide the initial data for recording transactions in the accounting system, ensuring the accuracy and reliability of financial information.
2. Examples of source documents include invoices, receipts, purchase orders, sales slips, checks, and bank statements.
3. Source documents are used to create journal entries, which are then posted to the general ledger accounts.
4. Analyzing and journalizing transactions using source documents is a crucial step in the accounting cycle.
5. Source documents are essential for the preparation of subsidiary ledgers, which provide detailed records of individual accounts.

Review Questions

• Explain the role of source documents in the initial steps of the accounting cycle.
  • Source documents play a vital role in the initial steps of the accounting cycle. They provide the first written evidence of a business transaction, serving as the basis for recording the transaction in the accounting records. The information from source documents is used to analyze and journalize the transaction, which is then posted to the appropriate T-accounts in the general ledger. Without reliable source documents, the entire accounting cycle would lack the necessary foundation to accurately record and track financial activities.
• Describe how source documents are used to create journal entries and post to T-accounts.
  • Source documents are the primary input for creating journal entries, which are the formal written records of a transaction. The information from the source document, such as the date, description, and monetary amounts, is used to debit and credit the appropriate accounts in the journal entry. These journal entries are then posted to the corresponding T-accounts in the general ledger, ensuring that the financial records accurately reflect the business's transactions. The accurate and timely posting of journal entries based on source documents is crucial for maintaining the integrity of the accounting information system.
• Analyze the importance of source documents in the preparation of subsidiary ledgers.
  • Source documents are essential for the preparation of subsidiary ledgers, which provide detailed records of individual accounts. The information from source documents, such as invoices, receipts, and bank statements, is used to record and track the transactions that make up the balances in the general ledger accounts. By referencing the source documents, accountants can accurately update the subsidiary ledgers and ensure that the detailed records reconcile with the corresponding general ledger accounts. This process enhances the reliability and transparency of the accounting information system, allowing for more effective management and decision-making.

Related terms

Accounting Cycle:

The series of steps an organization follows to record, classify, and summarize financial transactions, culminating in the preparation of financial statements.

Journal Entries:

The recording of a transaction in the accounting records by debiting one or more accounts and crediting one or more accounts.

Subsidiary Ledger:

A detailed record of individual accounts that supports the information contained in the general ledger.