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The accounting process begins with the initiation and analysis of business transactions. Every transaction must be supported by documentary evidence, commonly referred to as source documents.
Source Documents in Accounting :
Source documents serve as the original records that validate business transactions. They are essential for maintaining accurate accounting records and providing evidence that a transaction took place. Examples of common source documents include:
Invoices: Bills issued by a seller to a buyer, detailing the amount due for goods or services provided.
Receipts: Confirmation of payment issued by the seller, proving that payment has been received.
Purchase Orders: Documents sent by a buyer to a seller, specifying the products or services ordered, including quantities and prices.
Sales Orders: Documents generated by a seller in response to a purchase order, confirming the sale and its terms.
Bank Statements: Monthly statements from a bank listing all transactions within an account over a certain period.
Cheques: Written orders directing a bank to pay a specified amount from the drawer's account to a named party.
Deposit Slips: Documents provided by a bank as a receipt for funds deposited into an account.
Credit Memos: Issued by a seller to reduce the amount owed by a buyer, often due to returns or errors.
Debit Memos: Documents issued to increase the amount owed by a buyer, usually due to underbilling or additional charges.
Timesheets: Records of hours worked by employees, used to calculate payroll.
Contracts and Agreements: Legal documents outlining the terms of transactions, such as rental agreements or loan contracts.
These documents are crucial for auditors and accountants, as they confirm the accuracy and completeness of financial statements and help to ensure compliance.
A source document is the initial record of a transaction and serves as the foundation for preparing accounting vouchers, which are necessary for making entries in the accounting books. In cases where no documentary evidence is available—such as for petty or miscellaneous expenses—a voucher is prepared to detail the transaction and provide the necessary evidence. All source documents are organized chronologically and assigned serial numbers to facilitate tracking. Accounting entries are based on these vouchers, which serve as documentary evidence and record the accounting details of transactions.
Preparing an Accounting Voucher :
An accounting voucher is a written document used to authorize and record financial transactions in the accounting books. The process of preparing an accounting voucher involves several steps to ensure accuracy and compliance with accounting procedure:
Identify the Type of Voucher:
Debit Voucher (Payment Voucher): Used for recording cash or bank payments. Examples include payments for expenses, purchases of goods or assets, payments to creditors, loan repayments, drawings, and advances.
Credit Voucher (Receipt Voucher): Used for recording cash or bank receipts. Examples include cash sales, revenue income (e.g., interest or rent), receipts from debtors, loans, and cash withdrawals from the bank.
Transfer Voucher (Journal Voucher): Used for recording non-cash transactions such as adjustments, accruals, or internal transfers. Examples include credit purchases, credit sales, returns of goods sold or purchased on credit, depreciation on assets, and bad debts.
Contra Voucher: Used for transactions involving transfers between cash and bank accounts or between different bank accounts within the organization. These transactions usually do not involve a third party and have a neutral effect on the organization's overall financial position.
All vouchers are essentially a part of journal vouchers and are further categorized based on the nature of the transaction. For instance, a debit transaction involving cash or bank is recorded as a payment or debit voucher, while a credit transaction is recorded as a receipt or credit voucher. Transactions involving the sale of goods or services are recorded using a sales voucher, also known as an invoice. Transactions within the organization that do not involve a third party, such as cash-to-cash or bank-to-bank transactions, are recorded as contra vouchers. Any transaction not covered by debit, credit, contra, or sales vouchers is included in a journal voucher.
Collect Supporting Documents: Gather all relevant source documents, such as invoices, receipts, and purchase orders, that provide evidence of the transaction.
Fill in the Basic Details:
Date: Enter the date of the transaction.
Voucher Number: Assign a unique number to the voucher for identification and tracking.
Particulars: Provide a description of the transaction, including details of the parties involved.
Account Head: Specify the accounts to be debited and credited.
Record the Transaction Amount:
Debit Amount: Enter the amount to be debited from the relevant account.
Credit Amount: Enter the amount to be credited to the relevant account. The debit and credit amounts should balance.
Attach Supporting Documents: Attach the relevant source documents (e.g., invoices, receipts) to the voucher for reference and verification.
Authorization:
Prepared By: The person who prepared the voucher should sign it.
Checked By: The voucher should be reviewed and signed by a responsible person (e.g., an accountant or supervisor) to verify its accuracy.
Authorized By: The voucher should be approved by an authorized person (e.g., a manager or senior accountant).
Entry into the Accounting System: After preparation and authorization, the voucher details should be entered into the accounting system or recorded in the relevant ledger or journal.
In computerized accounting systems, once the transaction is entered and processed, a preprinted accounting voucher is generated. This voucher, along with its supporting documents, should be filed and stored systematically for future reference and audit purposes.
Check out our next article on the "Accounting Equation and How Transactions Impact It" to gain insights into how transactions influence financial positions and the fundamental balance of assets, liabilities, and equity.