A source document is a document that you attach to every journal entry when you do your accounting. The source document verifies the transactions you record.
Everything you record in your accounting has to include a source document to verify the transaction. Examples include invoices, receipts, or timesheets.
Accounting systems usually have methods for you to scan and store your documents—for example an app that lets you take photos of the document and send it directly to your accounting software.
What should a source document include?
What the source document should include will vary from country to country, but usually they include:
- The identity of the parties: For invoices and receipts, this includes your business name, business number, address and contact details, as well as the buyer’s name or business name, business number, address and contact information. If the document is, for example, a timesheet, it should include details about the employer and the employee.
- The date the invoice or receipt was issued.
- A description of the items that were sold or purchased, as well as their quantity and prices.
- Consumption tax, such as VAT or GST, if applicable
If it’s not clear why this is a business purchase, you should write a brief explanation on the invoice or receipt and sign it before you scan it or store the physical document. For example, if you’ve had a lunch meeting with a client, you should write ‘lunch meeting’ and the name of the client on the receipt from the restaurant, and then sign it.
How to store these documents
You’re usually allowed to store these documents in physical form, but the safest and most practical way to store them is to save electronic copies. That way, they’ll be safe from water damage, fire, and theft, and they’re usually easier to look through and sort if they’re in an electronic archive.
You’re usually required to keep source documents for a certain amount of time. You should check what applies in your country.