A source document is the original document that captures the details of a business transaction and proves that it took place. Sales invoices, supplier bills, cash register receipts, canceled checks, bank deposit slips, purchase orders, receiving reports, timesheets and contracts are all source documents. They are the starting point of the accounting process: bookkeepers analyze them, prepare a journal entry from the information they contain, and keep them on file as evidence.
Source documents give accounting records their credibility. Every amount in the general ledger should be traceable back to one or more source documents, and every valid source document should be traceable forward to the ledger. This two-way link, known as the audit trail, allows managers, auditors and tax authorities to check that the records are complete and accurate.
Common source documents
| Document | Transaction it supports | Typical entry |
|---|---|---|
| Sales invoice | Sale on credit | Debit accounts receivable, credit sales |
| Supplier invoice | Purchase on credit | Debit inventory or expense, credit accounts payable |
| Cash register tape or receipt | Cash sale | Debit cash, credit sales |
| Check stub or payment record | Payment to a supplier | Debit accounts payable, credit cash |
| Deposit slip and remittance advice | Customer payment received | Debit cash, credit accounts receivable |
| Timesheet and payroll register | Payroll | Debit wages expense, credit cash and withholdings |
| Credit memo | Sales return or allowance | Debit sales returns, credit accounts receivable |
Some documents, such as a purchase order, do not themselves trigger an accounting entry, because no transaction has occurred until goods are received. They are still important supporting evidence that a purchase was authorized.
Worked example: a purchase transaction
A restaurant orders $1,800 of kitchen supplies. Three documents are created: the purchase order signed by the manager, a receiving report prepared by the chef confirming delivery of all items, and the supplier's invoice for $1,800. The accounts payable clerk matches the three, confirms quantities and prices agree, and records a debit to supplies and a credit to accounts payable for $1,800. When the invoice is paid, the payment record becomes the source document for the debit to accounts payable and credit to cash. All four documents are filed together, physically or electronically, with the journal entry reference written on them. This three-way match is a basic internal control that prevents paying for goods that were never ordered or never delivered.
Role in internal control and audit
- Prenumbered documents, such as sequential invoice and check numbers, make it possible to detect missing or duplicated transactions.
- Approval signatures or electronic approvals on source documents show that a transaction was authorized.
- Auditors vouch recorded amounts back to source documents to test whether transactions really occurred, and trace documents forward to the records to test completeness. A journal audit often starts here.
- Missing or altered documents are a common warning sign of fraud, such as fake supplier invoices or inflated expense claims.
Retention and digital records
Most source documents today are electronic: e-invoices, scanned receipts, card transaction data and system-generated records. The Internal Revenue Service accepts electronic records if they are accurate, complete and retrievable. Businesses must generally keep records supporting items on a tax return until the period of limitation for that return expires, usually three years, but longer in some cases, such as seven years for claims of bad debt deductions or losses from worthless securities, and at least four years for employment tax records. Many companies keep financial records for seven years or more as a matter of policy. Good document management, with consistent naming and links between documents and entries, speeds up the monthly close and the annual audit and is a core part of sound bookkeeping.