Question

Describe the events recorded in accounting systems and the importance of source documents in those systems?

Answer 1

It is beyond human capabilities to memorise each financial transaction and that is why, source documents have their own importance in accounting system.

They are considered as an evidence of transactions and can be presented in the court of law.

Transactions supported by evidence can be verified. Source documents also ensure that transactions recorded in the books are free from personal biases.

A few events that are supported by source document are given below:

1. Sale of goods worth Rs 200 on credit, supported by sales invoice/bill

2. Purchase of goods worth Rs 500 on credit, supported by purchase invoice/bill

3. Cash sales worth Rs 1,000, supported by cash memo

4. Cash purchase of goods worth Rs 400, supported by cash memo

5. Goods worth Rs 100 returned by customer, supported by credit note

6. Return of goods purchased on credit worth Rs 200, supported by debit note

7. Payment worth Rs 1,200 through bank, supported by cheques

8. Deposits into bank worth Rs 500, supported by pay-in slips.

Out of the above events, only those events that can be expressed in monetary terms, are recorded in the books of accounts.

However, the non-monetary events are not recorded in accounts; for example, promotion of manger cannot be recorded but increment in salary can be recorded at the time when salary is paid or due.

Source document in accounting is important because of the below given reasons:

1. It provides evidence that transaction has actually occurred.

2. It provides information about the date, amount and parties involved and other details of a particular transactions.

3. It acts as an evidence in the count of law.

4. It helps in verifying the transaction during the auditing process.