Source documents and books of original entry

By end of this study the reader should be able to know the role of source documents, the nature as functions of book of original entry, prepare day books and journals, transfer from books, of original entry to the relevant ledgers, know the effect of trade discount and value added tax on revenue and one of the article we said that the historical cost concept make finance transactions to be objective because they can be traced to source documents . Here we shall explain those source documents, their importance and the books of original entry to which they relate, the book of original entry is the accounting record in which transactions are first recorded from source documents.

The need for source documents

Source for constitute the source of all originally information on the financial transactions of a business.

They perform the following functions;

They serve as evidence of financial transactions thereby guiding against fraud
They as evidence of financial transactions thereby making audit possible
They are usually signed by the parties to the transaction therefore they are not usually denied
They usually signed by the parties to the transaction, therefore it is almost impossible to alter or collude in order to defraud
In some cases, there could be more than one source documents for a transaction but they would complement one another.

Main source documents

The main source documents that are used for recording in the book of original entry aref

Revenue invoice
Purchase invoice
Credit note
Debit note
Payment voucher
Petty cash voucher
Bank pay in slip
Cheque counterfoils
Monthly bank statement

Others which may not contain full information to make recording possible in the books of original entry are:

purchase order
Delivery note
Goods receive note
Bin card

Revenue invoices

A revenue invoice serves as the source documents to record in the revenue day book. This a document sent by the seller to the buyer requesting the buyer to pay for the amount stated on the onvoice for good as service rendered to to him. Usually bills are sent for service rendered while invoice are sent for goods sold.

A revenue Invoice would contain the following particulars;

Name and address of the seller and purchaser
Date of the revenue
Description and quantity of goods rice and total amount of invoice
Amount charge for value added tax
Condition and terms of revenue such as trade discount and the date payment fall due
signature of the parties

Revenue invoice are prenumerd and prepared in duplicate. The original is sent to the buyer while the duplicate provides what is recorded in the revenue day book .

Purchase invoice

A purchase invoice serves as the source documents to record in the purchase day book. As explained in the last paragraph, the purchase invoice is the original of the revenue invoice sent by the supplier to the customer. Therefore, the revenue invoice and the purchase invoice contains the same details. The only differenceis that purchase invoice are in the books of the buyer and are received from various customers and therefore will not be renumbered because goods are purchase from different sources .

Credit note

A credit note is a document relating to good return by the buyer or refund to him when the buyer has been overcharged.

Goods may be returned by a customer for any of the following reason

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 reduce by the amount stated on the credit note.

Credit note issued represent returns on revenue while credit note recieved represent returns on purchases. A credit note is made out in red to distinguish it from an invoice.

Debit note

The buyer normally issues 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 as evidence by the issue of the credit note to the buyer.

a debit note is also prepared whenever it becomes necessary, for one reason or the other, to increase the amount due from a doctor, an example is where the seller has under charged customer on an invoice.

Generally, any expenses that should have been charge to the customer but were erroneously omitted when the invoice was made out would be charged subsequently means of a debit note prepared by the supplier.

payment voucher

In an organization every payment must be supported by a payment voucher. Example of payment voucher for salary and wages, and petty cash voucher etc.

Payment voucher is an authorizing document for payment for a particular expenses or services. The voucher must be checked and authorize by a responsible or authorizing officer before cash can be paid.

Bank pay in slips

This serve as evidence of cheque and cash paid into the bank by a organization and individual. it is the major source documents for recording in the bank column of cash book.

Pay in slip contains the following information

Name of branch where the account number is operating
Name of the business and account number
phone number of the depositor
Name of the person paying in the cheque or cash
it it is cash ,the total amount of each cash denomination is stated.
If it is cheque number, name, name of bank, amount on each cheque and branch for each of the cheque being lodge
Column for signature of the person paying in
column for signature of the bank official receiving the cheque with banks official stamp
Date of lodgment

Cheque counterfoils

cheque counterfoils serve as evidence of payment to payable through the bank and withdrawals for office or personal use.

In most organization all cash received must be paid to the bank and all cash payment must be made through the bank. Therefore for many businesses, cheque counterfoils have become major source documents for recording in the bank column of the cash book.

Receipts

Receipt are issued for cash as cheque recieved from a customer for goods sold or services rendered to him. The originalis issued to the buyer, it represents the documents for recording cash paid in his cash book. The Seller retains the duplicate, which which is the documents for recording cash received in the cash book of the seller.

Receipt contain the following information

Name of customers
Date of recieving cash or cheque
about of cash or cheque in words and figures
Signature of the receiver

purchase order

A purchase order is issued by a customer requesting the seller to supply certain quantities of goods of specific description. The purchase order will also state the agreed price and the delivery point and date.

Invoice are compared with the purchase order when invoice are received. The goods recieved note is issued after it has been ascertain that the goods supplied meet the specifications in the purchase order. An example of a purchase order is the local purchase order(lpo).

Delivery note

Delivery note accompanies the goods dispatched to the customer. Delivery note protect the dispatch driver from harassment on how he comes about the goods and services as evidence of goods received by the purchaser when it is signed by />

Goods received note (GRN)

The goods received note shows the evidence that the goods dispatch to an organization are received in good condition and meet the specifications. The account department will require seeing the relevant GRN before paying the supplier. The GRN is also used to update the bin card.

Bin card

Bin card record movement of inventories. When inventories are added to the store or warehouse bin card is debited and when inventories is issued to production, the bin card is credited.

The need for books of original entry;

These books are also referred to as book of prime entry or subsidiary books or day book or journals. They are the books in which transactions are first recorded. Transactions can be recorded directly to the ledger but the books of original entry are in use because they have the following advantage which the ledger does not have.

They record the total of transactions In one place rather than the individual account
They provide an explanation of the transactions recorded. For instance the journal shows the complete story of a transaction. You will not need to look at the depit and credit for a transaction in different accounts.
They provide record of transactions in chronological order
They help to prevent error. The total in the book of original entry can be reconcile with the total in the individual accounts

Main books of original entry;

Revenue day book
Purchase day book
Revenue return book/return inward book
purchase return book/return outward book
Journal
cash book
petty cash book.

In a computerized accounting system the original book of entry may not be in printed form but stored in a computer memory.

Revenue day book

Revenue day book is a book of original entry that records credit revenue. The source documents is the duplicate of the invoice issued to the customer. The volume of daily revenue normally demands that it is issued first to collate a period "scale before being transferred to revenue ledger accounts.

The revenue day book shows the following information :

A list of the revenue invoice in the order in which they are issued
The date of issue
The name of the customer
The number of invoice
The revenue ledger number to which the individual accounts are posted
The net amount of the invoice after deducting trade discount and value added tax.

purchase day book

The purchase day book is the book of original entry used to record all credit purchases. The total therein is transferred to the debit of the purchase ledger at regular intervals. Each supplier account is credited in the subsidiary ledger. The period may be daily ,weekly or monthly depending on the volume of purchase transactions. The details on purchases day book are gotten from incoming invoice . Each supplier account is credited in the subsidiary ledger

Revenue return book

The revenue return book or return inward book is the original entry that records return on goods sold to customers, the revenue return book analyses what goods were returned.

The journal

The journal is used as the book to record transactions that do not fit into other subsidiary books. The information recorded in the journal about each transactions includes :

The date of the transaction
The debit and credit changes in specific ledger accounts
A brief explanation of the transactions, referred to as narration or narrative

The narration us required to indicate the purpose and authority of the transactions. For efficient use of the journal, candidates must be able to analyse the effect of a transaction on assets, liabilities, and owners equity.

Uses of the journal

The journal is used for the following :

opening and closing entrie

Transfer from one account to the other

Purchases and revenue of non current asset on credit

End of period adjustment

Correction

In summary we have discussed source documents, there uses and relationships to the book of original entry. We also examined the importance of the book of original entry and illustrate how they are to be transferred to the ledger account. The journal, as a means of recording unusual transactions ,was also examined.

In accounting, source documents are records that provide evidence of a business transaction. These documents are also known as books of original entry.

Source documents are typically generated at the time a transaction occurs and provide information that is used to record the transaction in the accounting records. Common source documents include invoices, receipts, and bank statements.

The information from source documents is used to create journal entries, which are then posted to the ledger accounts. Ledger accounts show all the transactions that have been recorded for a specific account.

While source documents are not required to be kept after a transaction has been recorded, they are important records that can be used to verify the accuracy of the accounting records.