Source Documents

Key Concepts

What is a source document?

A source document is a document that provides evidence that a business transaction has taken place. It contains the details needed to record the transaction in the accounting books — such as the date, the parties involved, and the amount.

Source documents are used because of the objectivity theory: transactions must be recorded based on information that is reliable and verifiable, free from personal opinions and biases.

The 7 Source Documents

Credit notes and debit notes work in both directions.

The business can be on either side:

• When the business is the seller (credit customers buy from the business): the business issues credit/debit notes to its credit customers.
• When the business is the buyer (the business buys from suppliers on credit): the business receives credit/debit notes from the supplier.

The document is always issued by the seller — what changes is which role the business is playing in that particular transaction.

Payment voucher — internal document only:

Unlike other source documents, the payment voucher is created internally by the business — it is not received from an external party. It is only used when the business pays a credit supplier by cheque. For other cheque payments (e.g. rent, insurance), the source document is a receipt issued by the payee.

What is a dishonoured cheque?

A cheque the bank refuses to pay — usually because the payer's account does not have enough money to cover it. (You'll learn how to record these in Chapter 8.)

What is a bank overdraft?

The business has spent more money than it has in its bank account. The bank covers the shortfall, so the business owes the bank. (You'll learn more about this in Chapter 8.)

How to Remember

Use this decision guide to identify the source document for any transaction:

Question to ask	Answer	Source Document
Did a credit sale or credit purchase occur?	Yes	Invoice (issued by seller)
Was cash or a cheque received?	Yes	Receipt (issued by receiver)
Did a credit customer return goods, or were they overcharged?	Yes	Credit note (issued by seller)
Was a credit customer undercharged?	Yes	Debit note (issued by seller)
Was a cheque issued to a credit supplier?	Yes	Payment voucher (issued internally by buyer)
Was the credit supplier informed of which invoice was paid?	Yes	Remittance advice (sent by buyer)
Does the business need to check bank activity, bank charges, or interest?	Yes	Bank statement (provided by bank) — e.g. the business is charged bank fees, charged interest on an overdraft, or receives interest on its bank account

The most commonly confused pairs:

Confusion	How to tell them apart
Credit note vs Debit note	Credit note = reduces amount owed (return or overcharge) Debit note = increases amount owed (undercharge)
Receipt vs Invoice	Receipt = cash or cheque is paid immediately (not later) Invoice = goods/services were supplied on credit (cash comes later)
Payment voucher vs Remittance advice	Payment voucher = authorises the payment (internal) Remittance advice = informs the supplier which invoice was paid (sent to supplier)
Receipt vs Payment voucher	Receipt = receiving money (issued by receiver) Payment voucher = paying a credit supplier (issued by the paying business)
Receipt vs Remittance advice	Receipt = the receiver's acknowledgement that money came in Remittance advice = the payer's note telling the supplier which invoice the cheque settles Both can appear in the same supplier payment — but from opposite sides.

Quick principle:

A receipt is always issued by whoever receives the money. A payment voucher and remittance advice are both issued by whoever pays — the voucher authorises the payment internally; the advice tells the supplier which invoice it covers.