CH-8 ORIGIN OF TRANSACTIONS

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Chapter 08: Origin of Transactions:

Source Documents of Accountancy

Source Documents of Accountancy: The “origin” of a transaction lies in the source document. These are the original written evidence of a transaction. They provide the necessary details and proof for recording the transaction in the books of accounts.

1) Cash Memo: Issued by a seller when goods are sold for cash. It contains details like date, quantity, rate, amount, and description of goods. Similarly, a buyer receives a cash memo when purchasing goods for cash.

2) Invoice and Bill: Prepared by a seller when goods are sold on credit. The original copy is sent to the purchaser, and a duplicate is retained for records. When a trader purchases goods on credit, they receive a credit bill from the supplier.

3) Receipt: Issued by a business when it receives cash from a customer. It includes the date, amount, and name of the payer. The original is given to the customer, and a duplicate is kept for records.

 4) Debit Note: Prepared when goods are returned to a supplier (purchase return). It indicates that the supplier’s account has been debited.

5) Credit Note: Prepared when goods are received back from a customer (sales return). It indicates that the customer’s account has been credited.

 6)Pay-in-slip: A form used to deposit cash or cheques into a bank account. It has a counterfoil that is stamped and returned to the depositor as proof of deposit.

7) Cheque: An order in writing drawn upon a bank to pay a specified sum of money to a named person or to the bearer. The counterfoil of the cheque acts as a source document.

 

VOUCHERS

        Meaning of Vouchers: While source documents are the initial evidence, vouchers are internal documents prepared by the accountant based on source documents. They authorize the recording of a transaction and specify which accounts are to be debited and credited.

Key Features of Vouchers:

  • Prepared on the basis of source documents.
  • Contain an analysis of the transaction (which account to debit/credit).
  • Signed by an authorised signatory.
  • Act as a link between source documents and the books of original entry (Journal).

 

 Distinction between Source Documents & Vouchers:

Aspect Source Document Voucher
Definition Original written evidence of a business transaction. An internal document prepared based on a source document to authorise and facilitate recording.
Purpose Provides primary evidence that a transaction occurred. Authorises the recording of a transaction and specifies which accounts to debit and credit.
Nature External or internal proof of an economic event. An internal accounting instruction/authorization document.
Legality Often serves as legal proof of a transaction. Primarily for internal control and accounting purposes; typically not legally binding with external parties.
Approval May or may not require explicit approval (e.g., a cash memo is generated upon sale). Almost always requires authorization/signature from a responsible person or department.
Usage in Accounting The basis for preparing accounting vouchers and for initial recording in books. The instruction for making entries into the books of original entry (Journal).
Examples Cash Memo, Invoice/Bill, Receipt, Pay-in-Slip, Cheque, Debit Note, Credit Note. Cash Voucher (Debit/Credit Voucher), Journal Voucher (Transfer Voucher), Contra Voucher.
Serial Numbering May or may not have a unique serial number depending on the type (e.g., invoices usually do). Typically assigned a unique sequential voucher number for internal tracking.

 

Types of Vouchers:

Cash Vouchers: Prepared for cash payments (Debit Voucher) and cash receipts (Credit Voucher).

  1. DEBIT VOUCHERS: A Debit Voucher, also commonly known as a Payment Voucher, is an internal accounting document prepared to record and authorise cash payments made by the business.
  2. CREDIT VOUCHERS: A Credit Voucher, also commonly known as a Receipt Voucher, is an internal accounting document prepared to record and authorize cash receipts by the business.

 

NON-CASH OR TRANSFER VOUCHERS: Prepared for non-cash transactions like credit purchases, credit sales, depreciation, goods returned, etc.

COMPOUND VOUCHERS: Record transactions that involve multiple debits and one credit, or multiple credits and one debit.

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