Subsidiary Books and Source Documents: A Comprehensive Guide to

School: Assoc. of Chartered Certified Accountants - Course: ACCOUNTING BM001-3-1- - Subject: Accounting

Subsidiary Books (Books of Original Entry) and Source Documents Source Documents All entries in the books must be supported by documentary evidence. Therefore the source documents provide detailed information for the preparation of the books of accounts. It constitutes the source of all original information in the financial transaction of a business. The Need For Source Documents 1.They serve as evidence of financial transactions thereby making audit possible. 2.They serve as evidence of financial transactions thereby guiding against fraud. 3.In some cases, there could be more than one source document for a transaction but they would complement one another. Main Source Documents The main source documents are as highlighted below: 1.Sales Invoice 2.Purchases Invoice 3.Credit notes 4.Debit notes 5.Payment vouchers 6.Bank pay-in-slips 7.Cheque counterfoils 8.Receipts 1.Sales Invoice A sales invoice serves as the source document to records in the sales day book. This is a document sent by the seller (usually for credit sales) requesting the buyer to pay for the amount stated on the invoice for goods or services rendered to him. Usually bills are sent for service rendered while invoices are sent for goods sold. A sales invoice would contain the following particulars: 1.Name and address of the seller and purchaser 2.Date of the sales 3.Description and quantity of the goods sold 4.Unit price and the total amount of invoice 5.Amount charged forValue Added Tax (VAT) 6.Conditions and terms of sales such as trade discount, cash discount and the date payment fall due 7.Signature of the parties. 2.Purchases Invoice A purchase invoice serves as the source document to records in the purchase day book. It contains the same details as the sales invoice but the only difference is that purchases invoice are in the books of the buyer and are received from various customers. 3.Credit Note A credit note is a document relating to goods returned by the buyer or refunds to him when the buyer has been overcharged. Goods may be returned by a customer for any of the following reasons: 1.Damage to the goods before delivery 2.Wrong specification from the one ordered by the customer. The purpose of credit note is to inform the buyer that his indebtedness has been reduced by the amount stated on the credit note. Credit note issued represents returns on sales while credit note received represents returns on purchases. A credit note is made out in red to distinguish it from an invoice. 4.Debit Note The buyer normally issue a debit note to a supplier to request for a credit note. The buyer may not debit the account of the supplier until his request is approved by him evidencedby the issue of the credit note to the buyer. 1

A debit note is also prepared whenever it becomes necessary for one reason or the other to increase the amount due from a debtor. An example is where the seller has under charged a customer on an invoice. It can however be said that while credit note is issued in order to correct an overcharge, debit notr is issued to correct an under charge. 5.Payment Voucher In an organization every payment must be supported by a payment voucher. Payment voucher is an authorizing document for payment for a particular expense or service. The voucher must be checked and authorized by a responsible an authorizing officer before cash can be paid. 6.Bank pay-in slip This serves as evidence of cheque and cash paid into the bank by an organization. It is the major source document for recording in the bank columns of cashbook (debit side). Pay-in-slip contains the following information: 1.Name of the business and account number 2.Name of the person paying in the cheque or cash 3.If it is cash, the total amount of each cash denomination is stated 4.Column for signature of the person paying in 5.Column for signature of the bank official receiving the cheque with the bank's official stamp.