Accounting Source Documents

Accounting Source Documents
Accounting Source Documents

Accounting source documents are at the heart of all accounting and bookkeeping procedures. Nearly every single transaction will start with a source document or also known as the paperwork. A system is needed for each of the source documents to ensure a business runs smoothly.

In this guide, we will look at the different documents and how a business can store them. We have also included some source documents examples.

Most source documents will come in either paper or electronic format (PDF or image). Each source document will have important information in it including:

  • Transaction date
  • Amount
  • Name of both businesses or people
  • Reference Number
  • Description

Why are Accounting Source Documents Important?

Accounting source documents provide an audit trail of transactions within the business. Anyone reviewing the business accounts should be able to follow through a transaction, this may be important for an accountant preparing the books.

One of the main reasons for needing copies of documents is for accountants and taxation. HMRC will complete checks on some business, and having all the documents can prove that you are running the business correctly.

How to Store Accounting Source Documents

A copy of all paperwork needs storing whether it is a paper format or online. Below we will look at the different options in keeping the paperwork.

Paper Filing

A method which some companies still use is to keep a physical copy of all records. It will mean using files and folders. Depending on the size of the business will depend on how the records are stored.

A small business may only need one file for a whole years paperwork and separate it into different sections for sales and purchases.

A larger business will require a file or more for each type of paperwork. An example is a file for all the sales invoices sent to customers and a file for supplier invoices or bills. There are different options on how to organise the paperwork, including:

  • In number order – This is useful for sales invoices
  • Date Order – Filing the newest paperwork on top – This can make it difficult to find documents
  • By customer or supplier in alphabetical order and then by date or number

Organising the filing system is essential; many small businesses still keep all their paperwork in a box or bag and pass to the accountant or bookkeeper at the year-end. A significant disadvantage of this is not knowing the financial position of the business, and also having to pay someone to sort the paperwork.

Accounts Software Filing

The most popular accounting software applications include uploading documents to the system. There are a couple of ways to achieve this, either by uploading images or PDF’s. Many businesses now email across invoices, these are then available to store as a record within the software.

Below is an example of how to attach an invoice to a Document within Xero accounting software.

Xero Attach Source Document

The main advantage of using this system is to make it easier to share documents with other employees, a bookkeeper or accountant. It will save taking paperwork for the preparation of the accounts.

Other popular accounts software also offer this feature, including Sage and QuickBooks.

Receipt Bank and AutoEntry

Receipt Bank and Auto Entry are programs for you to scan or photograph your documents, and it will pull the data for you and create the relevant entry. They can save a lot of time entering records to the accounts software.

The more documents entered, the more the system learns about allocating figures to the correct account. If you use either of these programs alongside bank feeds, the whole accounting process is speeded up and allows more time to concentrate on the business.

The one disadvantage of these applications is the cost. They both have a monthly fee so you will need to weigh up if it is worth the money. Some accountants offer receipt bank or auto entry as part of their service, so it is worth checking.

Cloud Storage for Accounting Source Documents

Cloud storage is becoming more and more popular with business. It offers flexibility with the option to share documents between employees and accountants. There are lots of different options, but GSuite and Microsoft 365 are the most popular.

Using cloud storage allows employees and accountants to access files and folders to make changes. It is also possible that more than one person can work on the same file.

If you keep your accounting source documents in the cloud, make sure the folders are well organised, making it easier to find documents.

Types of Accounting Source Documents

There are many different source documents in accounting; some you will create yourself and others will arrive from suppliers. Below are some of the most popular documents with a description. If you follow the link, it will take you to a more details description with examples and free Excel templates.

Quote or Quotation

A quotation is a document that lists the services or products and prices to a potential customer. A customer may require several quotes to choose the best one. Once a quotation is received, it fixes the price.

Sales/Purchase Invoice

A sales invoice is a record of goods or services provided to a customer. It will include the details of the sale along with payment dates and amounts. The customer will treat it as a purchase invoice or bill in the accounts.  This document is one of the main accounting source documents that every business will use.

Below is an example of our sales invoice template.

Sales Invoice Template UK VAT example

Credit Notes

If a sales invoice requires an adjustment, a credit note is issued to the customer. There are many reasons for issuing a credit note, including incorrect goods listed or inaccurate amounts.

Delivery note

When supplying goods, a delivery note is issued. It will show a record of the quantities and items

Remittance advice

Businesses send a remittance advice when payment of an invoice is complete. The advice will include invoices paid and total amount. Remittances can be emailed to confirm a BACS payment or sent with a cheque.

Cheques

A cheque is a document that a customer issues to a supplier that orders the bank to pay an amount. A cheque takes longer to process than BACS payments. Cheques are rarely used now as online payments have taken over.

Receipts

A receipt is issued when payment is complete. It might be a cash receipt or for a bank payment. Some companies send a copy of the sales invoice with paid on as a receipt.

Below is our cash receipt template.

Cash Receipt Template printable

Summary of Accounting Source Documents

As you have read above, accounting source documents make an essential part of accounting. All transactions in the accounting system will start with a source document.

It is vital to keep source documents for audit reasons and in preparation for accounts.

In the UK business are required to keep paperwork for six years.

Return from Accounting Source Documents to Bookkeeping Basics.