Accounting Transactions and Books of Accounts - Source documents

 Source documents are the original records of financial transactions, such as invoices, receipts, and bank statements. They provide evidence of the transaction and serve as the basis for recording the transaction in the books of accounts.

Source documents are important because they help ensure the accuracy and completeness of financial transactions. They provide a trail of documentation that can be used to verify the legitimacy of transactions and to resolve any discrepancies or errors.

Common types of source documents include:

  1. Sales invoices: These documents are issued by a business to a customer when a sale is made. They typically include information such as the date of the sale, the description of the goods or services sold, the price, and any applicable taxes or discounts.

  2. Purchase invoices: These documents are issued by a supplier to a business when a purchase is made. They typically include information such as the date of the purchase, the description of the goods or services purchased, the price, and any applicable taxes or discounts.

  3. Receipts: These documents are issued by a business to a customer when payment is received. They typically include information such as the date of the payment, the amount paid, and the method of payment.

  4. Bank statements: These documents are issued by a bank and provide a record of all transactions that have occurred in a bank account over a specific period of time.

  5. Payroll records: These documents are used to record information about employee compensation, including hours worked, wages earned, and deductions taken.

Once source documents are obtained, they are used to record transactions in the books of accounts, such as the journal and ledger. This process is known as bookkeeping, and it involves recording each transaction as a journal entry, posting the entry to the appropriate accounts in the ledger, and preparing financial statements.

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