Don’t you just hate it when your documents and records are all over the place?
Think about this for a moment:
You are likely to see many more documents and records in the life of your business. If you have already commenced your business, you will have noticed that many more documents need to be handled or processed than if you were not in business.
Let’s jump right in and tackle this one head on.
In accounting, there are two main types of documents.
The first type of documents are source documents. These are records of transactions and other economic events. Source documents are used to create entries in your accounting system if you are using one.
The second are reports. Reports are a vehicle that you, and others, can obtain information from your accounting system.
To put it simply, source documents provide your input data and reports are your outputs!
Let’s jump right in.
Source documents are primary records of economic events. Some examples include:
- purchase orders which are used by you to make orders from other businesses. Other businesses may give you purchase orders to order from you
- invoices and receipts
- remittances, which are records of payments received
- checks/cheques, both individually and the stubs left in the check/cheque book.
- bank statements
- deposit slips/books
- service records
- employee time sheets
If you use an accounting system, it also will generate source documents. Your suppliers or customers also create them, along with third parties such as banks
Other, non-accounting systems also generate source documents. Source documents may originate in word processing programs, spreadsheets or even be handwritten.
Some documents do not provide any evidence of economic events. Those documents are not relevant from an accounting context.
Source documents that provide evidence of an economic event are important records to keep. They may be needed to demonstrate the integrity of your accounting information. Tax authorities use this to substantiate your income/expenses or for sales/GST/VAT taxes.
Banks may refer to source documents to support records required for a loan application. Auditors use them to support their opinion on your accounting statements. You or your investors can use these records to understand your business profitability and performance.
Let’s dig a little deeper:
An invoice a source document that plays a key role.
This type of record is used to communicate that an transfer of goods and/or provision of services has occurred and payment is required.
An invoice can act as a receipt where payment has already occurred.
Elements on an invoice
An invoice will generally include various items of information.
- The identity of the seller (name, address, and possibly contact details)
- Line items or elements of the invoice. These describe each good or service provided. Itemized goods are described using the number of items supplied. Generally a line item total for each item or group of items is provided.
- The date the invoice was issued
- The date the invoice is due or must be paid
- The total amount of the invoice
But that’s not all.
Some countries use invoices as the basis for their GST/VAT tax systems. There may be additional requirements that may be required for an invoice to be considered valid under these systems.
- The invoice must state that it is a “tax invoice”
- Each line item must indicate whether it is a taxable supply
- The seller’s ABN must be disclosed on the invoice
- The total GST payable (if 1/11th, the invoice can state that the total amount includes GST)
- If the invoice is for more than $1000, the buyer’s identity and ABN (if any)