Chapter 8 – Origin of Transactions: Source Documents & Vouchers
Origin of Transactions
Every business day involves multiple economic activities: purchase/sale of goods & services, receipt/payment of cash, etc.
According to the Verifiable Objective Principle of accounting, each transaction must be supported by written, authentic proof.
The first written proof is called a Source Document; later, a summarising instrument derived from it is called a Voucher.
Purposes served:
Establish truthfulness & accuracy of records
Form legal evidence in disputes
Required for audit & tax assessments
Provide complete details (date, amount, parties, nature of transaction)
Major Source Documents
A source document accompanies every entry in the books. Common types:
1. Cash Memo
Issued when goods/services are sold for cash (seller gives) or bought for cash (buyer receives).
Contains item description, quantity, rate, total price.
Becomes the basis for all cash-based postings.
2. Invoice / Bill
Prepared by the seller on credit sales.
Details: name of customer, item, quantity, rate, total amount.
Original copy → purchaser; duplicate copy → seller’s files.
On credit purchase, the buyer receives a credit bill from the supplier (terminology interchangeable with “invoice”).
3. Receipt
Issued on receipt of cash from a customer; reverse when we pay cash to someone.
Indicates date, amount, and paying/receiving party.
Original to customer; duplicate for books.
4. Debit Note
Prepared when we return goods to a supplier.
Signals that the supplier’s account will be debited.
Content: date, account debited, amount, reason for debit.
Counterfoil retained to post the supplier’s debit entry.
5. Credit Note
Prepared when goods are received back from a customer.
Indicates that the customer’s account is credited.
Duplicate kept for records.
6. Pay-in-Slip
Printed form obtained from a bank; used to deposit cash/cheques.
Counterfoil is validated (stamped & signed) by the bank cashier and returned to depositor.
7. Cheque
Written order to a bank to pay a specific sum to bearer or named payee.
Cheque-book carries counterfoils mirroring cheque details for future reference.
Vouchers
A Voucher summarises the source document for accounting entry.
Prepared before recording in Journal/books of original entry.
Printed in the firm’s name, serial-numbered; related source documents are annexed.
Must show: accounts to be debited & credited, narration, amount, authorising signatures.
Proper filing helps auditors “vouch” transactions.
Preparation Flow
Source document arises from transaction.
Accountant draws up voucher on its basis.
Authorised person countersigns.
Voucher becomes the immediate evidence for journalising.
Difference: Source Document vs. Voucher
Basis | Source Document | Voucher |
|---|---|---|
Meaning | Written evidence of a business transaction | Document evidencing proper recording of that transaction |
Detail | Full description of transaction | Specifies which accounts to debit/credit & narration |
Evidence | Proves transaction occurred | Proves correct accounting treatment |
Preparation | Arises at time of transaction (sales, purchase, etc.) | Drawn later by accountant per accounting rules |
Classification of Vouchers
1. Cash Vouchers (Cash Transactions Only)
• Sub-types: Debit Voucher (cash payments) & Credit Voucher (cash receipts)
Debit Voucher – Typical Uses
Cash payment of expenses (e.g., salaries, rent)
Cash purchases of goods, investments, fixed assets
Cash paid to creditors
Depositing cash into bank
If no external document exists, the voucher’s receipt portion serves as the source document.
Credit Voucher – Typical Uses
Cash receipt of income (commission, interest)
Cash sales of goods, investments, fixed assets
Cash received from debtors
Withdrawal of cash from bank
Standard Information on a Credit Voucher
Date of preparation
Serial number
Name of account credited
Narration (brief explanation)
Net amount
Source document reference (e.g., cash memo no.)
2. Non-Cash (Transfer) Vouchers
Cover non-cash or adjusting transactions:
• Credit purchase/sale of goods, investments, fixed assets
• Returns outward/inward on credit
• Depreciation, provisions, accruals, etc.
3. Compound Vouchers
Involve multiple debits with one credit or multiple credits with one debit.
Two forms:
(a) Debit Compound Voucher – many debits, one credit.
(b) Credit Compound Voucher – many credits, one debit.
Very Short Answer / Quiz-Style Points
Source document – first written record; includes date, amount, parties, nature.
Two examples: Cash Memo, Invoice.
Invoice – bill prepared on credit sale; lists customer, rate, quantity, total.
Cheque – written bank order to pay specified sum.
Pay-in-Slip – bank form for depositing money.
Voucher – document evidencing a business transaction for recording.
Key difference: source document proves event; voucher proves correct recording.
Example voucher: Debit Voucher.
Compound Voucher – one entry with multiple debits/credits.
Two voucher types: Debit & Credit.
Voucher classes: Cash Voucher & Non-Cash Voucher; each can be Debit/Credit.
Depreciation charged on machinery → prepare a Non-Cash (Transfer) Voucher.
Importance of source documents: ensure truthfulness of recorded transactions.
Cash Memo is a Source Document (not a voucher).
Practical & Ethical Implications
Maintaining proper source documents & vouchers upholds transparency, deters fraud, and complies with statutory requirements.
Provides audit trail indispensable for internal control and external assurance.
Ensures stakeholders (owners, creditors, tax authorities) can verify the integrity of financial statements.
Real-World Connections
GST/VAT regimes: invoices require statutory details to claim input credits.
Bank reconciliation relies on cheque counterfoils and pay-in-slips.
Digital accounting systems now scan & attach PDFs of source docs to e-vouchers, preserving the same principles in paperless form.