CHAPTER 8 SOURCES OF DOCUMENTS

Recording of Transactions - I

Meaning and Types of Source Documents and Vouchers:

Objectives

After going through this lesson, you shall be able to understand the following concepts.
• Source Documents
• Vouchers meaning and their types

Source Documents

Document is a piece of paper which is used for recording any business transaction. This document is used as an evidence for recording a transaction. In fact, it is a written proof that a particular transaction actually took place. That is why these are termed as Source Documents.

A source document acts as a base for recording a particular transaction. This is because it contains information that tells which account is to be debited and which is to be credited along with the amount of transaction. Source document is prepared at the time when a transaction takes place.
It contains details of such transaction.

Let’s understand some of the source documents.

(1) Cash Memo:

Whenever goods are sold in cash, the seller prepares cash memo and records therein the details of goods sold. It includes quantity, rate and total amount of goods sold, along with the date of transaction.


 


(2) Invoice or Bill: 

Whenever goods are sold on credit, seller prepares invoice or bill and records therein the details of goods sold. It includes details of party, quantity, rate and the total amount of goods sold, along with the date of transaction.
 The seller generally prepares two copies of the invoice or the bill, the first copy is kept with himself and the other copy is send to the purchaser.
For a seller, this is an invoice and for the purchaser the same source document will be regarded as a bill.




(3) Receipt:

 Whenever any amount of cash is received from the customers, a receipt is issued to them by the receiver (usually the seller of goods). This receipt acts as a proof in the hands of customer that he has made payment to the seller with the amount specified in the receipt.
Receipt is prepared in two copies, first copy is handed over to the party making the payment and other copy is retained by the person accepting the payment for future reference.
Receipt contains details regarding party’s name, amount paid, date and nature of payment.






(4) Pay-in-Slip:

Whenever cash or any cheque is deposited into bank, the depositor has to fill pay-in-slips and submit it to the cashier along with cash or cheque.
 This pay-in-slip is a form that contains a counter foil which is returned back to the depositor by the cashier after signing it, as a receipt. Pay-in-slips basically contains details of date and amount relating to cash or cheque deposited.





(5) Cheque:

It is a document drawn by a banker in writing, payable on demand. In the cheque, the name of the person to whom the payment is to be made is legibly written along with amount to be paid in words as well as in numerals.
The name of the party is written against the words “PAY”. The cheque must be signed and dated by the issuer.
Details of cheque should also be entered in the attached counterfoils for future reference.






(6) Debit Note:

It is a source document that contains the name of the party whose account has been debited along with the amount and details of the bill in reference to which his account has been debited. Debit note results in reduced amount due to the supplier in case final payment to him has not yet been made. On the other hand, if the account of the supplier is settled in full then this debit note will enable the buyer to buy goods from the same supplier without making any payment for it. In case, goods are overvalued in a transaction between buyer and seller then buyer will make a debit note. On the other hand, in case goods are undervalued then seller will make a debit note.

(7) Credit Note:  Credit note is generally issued in case of sales return by a customer or when the customer is allowed any further discount. Credit note results in reduced amount receivable from the customer in case final payment from him is not yet received. On the other hand, if account of the customer is already settled in full then this credit note will enable the buyer to buy goods without making any payment for it.


Vouchers- Meaning and Types
A voucher is a written document that acts as an evidence of any business transaction. All source documents are vouchers. For examples, cash memos, invoice or bill, receipt and pay-in-slips, etc.

Vouchers are categorised into two types:
(a) Source Vouchers
(b) Accounting Vouchers
(a) Source Vouchers: It is a document in writing that contains complete details of a transaction. This document is used as an evidence for recording a business transaction. In fact, it is a written proof that a particular transaction actually took place. Examples- cash memos, invoice, receipt, etc.
(b) Accounting Vouchers: It is a written document prepared on the basis of source documents. It contains detailed analysis of transaction that is prepared by the accountant for the purpose of accounting. It is prepared and signed by the accountant and countersigned by the authorised signatory. Usually, source documents give an evidence of credit purchase/sale, cash sale, cash payments, etc. through bills, invoice, cash memos, etc. but do not tell anything regarding accounting of such transaction. So, for recording of transactions, an accountant analyses it in depth and decides the double effect of such transactions. This double effect is recorded in the voucher named as accounting voucher.