Source documents are the original records or evidence that provide information about business transactions and form an important basis for recording those transactions in the accounting books.
Watch the Video Tutorial
Source Documents in Accounting
What You Will Learn
- Meaning and importance of source documents
- Receipt and its uses
- Invoice and its uses
- Debit note and when it is issued
- Credit note and when it is issued
- Bank statement and the information it contains
- Examples of each source document
What Is a Source Document?
A source document is an original document or other supporting evidence that provides details about a business transaction. It supplies information needed to identify, verify and record the transaction in the accounting records.
Source documents are important because accounting records should be supported by evidence. They help the business establish what happened, when it happened, the parties involved and the amount involved.
From Source Document to Accounting Records
Source documents normally provide the starting evidence for recording business transactions. The information may then pass through the books of original entry and ledger accounts before being summarized in the financial statements.
1. Receipt
A receipt is a document issued to acknowledge that money or another form of payment has been received. It is commonly issued when a customer makes payment for goods or services.
A receipt may contain the name and address of the business, receipt number, date, name of the payer, amount received, purpose of payment, payment method and the appropriate authorization or signature.
Sample Receipt
Educational sample: This receipt uses fictional business information and is provided solely to illustrate the typical contents of a receipt.
Uses of a Receipt
- Provides evidence that payment has been received.
- Helps the business maintain a record of money received.
- Helps the payer establish that payment was made.
- Supports the recording and verification of cash or bank transactions.
2. Invoice
An invoice is a document issued by a seller to a buyer showing the goods or services supplied and the amount payable. It is particularly important in credit transactions, although invoices can also be issued in other business transactions.
An invoice normally contains an invoice number, date, seller's details, customer's details, description of goods or services, quantity, unit price, applicable charges or discounts, payment terms and total amount payable.
The exact information required on an invoice can depend on the jurisdiction and the type of transaction. A good invoice should, however, clearly identify the supplier, customer, transaction and amount due. 3
Sample Invoice
Mr. Adewale Musa
24 Education Road
Ibadan, Oyo State
Invoice No.: INV-00241
Invoice Date: 04 September 2026
Payment Terms: 30 Days
| Description | Qty. | Unit Price | Amount |
|---|---|---|---|
| Financial Accounting Textbook | 10 | ₦5,000.00 | ₦50,000.00 |
| Accounting Exercise Book | 4 | ₦2,000.00 | ₦8,000.00 |
Educational sample: The business name, customer, invoice number and figures are fictional.
Uses of an Invoice
- Shows the goods or services supplied to a customer.
- Shows the amount payable by the customer.
- Provides supporting evidence for recording a sale or purchase.
- Provides a reference for tracking outstanding amounts.
3. Debit Note
A debit note is a document used to notify another party of an adjustment that increases the amount previously charged or owed, or to record certain returns or adjustments depending on the transaction and accounting system.
In the common sales example used in introductory accounting, a seller may issue a debit note to a customer when the customer has been undercharged because of an error in the original invoice.
Goods sold to Mr. Abiodun were actually worth ₦58,000, but the original invoice showed ₦54,000.
The difference is:
A debit note for ₦4,000 may therefore be issued to communicate the additional amount due.
Sample Debit Note
| Description | Amount |
|---|---|
| Original amount charged | ₦54,000.00 |
| Correct amount | ₦58,000.00 |
| Additional amount due | ₦4,000.00 |
Educational sample: This is a fictional debit note illustrating an undercharge correction.
4. Credit Note
A credit note is a document issued to reduce an amount previously charged to a customer or otherwise adjust the amount due. It may be issued, for example, when a customer has been overcharged, goods are returned, or an agreed reduction in the amount payable is made.
Mr. Ade bought goods worth ₦4,600, but the original amount was mistakenly recorded as ₦5,200.
A credit note for ₦600 may therefore be issued to reduce the customer's outstanding balance.
Sample Credit Note
| Description | Amount |
|---|---|
| Original amount charged | ₦5,200.00 |
| Correct amount | ₦4,600.00 |
| Amount credited | ₦600.00 |
Educational sample: This fictional credit note illustrates the correction of an overcharge.
Uses of a Credit Note
- Corrects an overcharge.
- Records an agreed reduction in the amount previously charged.
- May be used when goods are returned by a customer.
- Provides evidence supporting the adjustment to the customer's account.
5. Bank Statement
A bank statement is a document provided by a bank that summarizes transactions recorded in a customer's bank account for a specified period.
Depending on the bank and account, a statement may show the transaction date, description or reference, withdrawals or debits, deposits or credits, charges and the balance after each transaction.
Sample Bank Statement
| Date | Description | Debit | Credit | Balance |
|---|---|---|---|---|
| 01 Sep | Opening Balance | — | — | ₦120,000 |
| 02 Sep | Transfer Received | — | ₦58,000 | ₦178,000 |
| 03 Sep | Office Supplies | ₦20,000 | — | ₦158,000 |
| 04 Sep | Bank Charge | ₦1,000 | — | ₦157,000 |
Educational sample: This is a fictional bank statement. The bank name, account details, figures and transactions are not real.
Uses of a Bank Statement
- Provides evidence of transactions passing through a bank account.
- Helps the business monitor deposits and withdrawals.
- Helps identify bank charges and other account movements.
- Provides information needed when preparing a Bank Reconciliation Statement.
- Helps the business verify its own cash-at-bank records.
Comparison of Common Source Documents
| Document | Main Purpose | Commonly Used When |
|---|---|---|
| Receipt | Acknowledges payment received. | Payment has been made. |
| Invoice | Shows goods/services supplied and amount payable. | A sale or supply is made and payment is due. |
| Debit Note | Communicates an increase or adjustment to an amount previously charged or recorded. | An undercharge or other applicable adjustment needs to be recorded. |
| Credit Note | Communicates a reduction or adjustment to an amount previously charged. | An overcharge, return or other applicable reduction occurs. |
| Bank Statement | Summarizes transactions recorded by the bank. | Reviewing activity in a bank account. |
Key Takeaways
- Source documents provide evidence supporting business transactions and accounting records.
- A receipt acknowledges that payment has been received.
- An invoice identifies goods or services supplied and the amount payable.
- A debit note can be used to communicate an additional amount due following an undercharge or other applicable adjustment.
- A credit note can be used to reduce an amount previously charged, such as where an overcharge or return of goods is involved.
- A bank statement provides a record of transactions processed through a bank account.
- Source documents help accountants verify and accurately record transactions.
Continue Learning
Now that you understand source documents, continue through the accounting recording process:
What is Source Document?
This is the original document in which accounting records are kept. These documents form the basis of accounting information because all entries in the financial statement are derived from them. The most common source documents include receipt, invoice, debit note, credit note, bank statement, among others.
Examples of Source Documents
The following are the most commonly used source documents in a business organisation:
- Receipt
- Invoice
- Debit Note
- Credit Note
- Bank Statement
- Receipt: This is the document that serves as the proof of ownership of an item. It is issued on a cash transaction. The information contains in a receipt include the name, address, contact details of the seller and the rows to enter the name, address, amount paid, date and the signature of the customer.
- Invoice: This is a document issue by the seller to credit customers in most cases to provide the details of the goods being bought or supplied. The information contain in this document include the invoice number, business name and address, issued date, customer name and address, price of the goods, quantity supplied, terms of trade, and the space for the signature of both the seller and customer or receiver of the goods.
- Debit Note: this document is issued when a customer is mistakenly undercharged or the business returns goods to suppliers. It is used to inform the customers stated amount has been debited to his account or to notify the supplier that is account has been debited with the amount of goods return as stated in the document. Debit note is normally prepared with blue ink.
For example: Items worth N58,000 sold to Mr Abiodun was mistakenly calculated as N54,000 before later discovered by the bookkeeper. In this situation, a debit note of N4,000 will be prepared and forwarded to Mr Abiodun to inform him about the real amount of the goods bought and that a sum of N4,000 has been debited to his account. - Credit Note: This is the opposite of a debit note. It is issued when a customer is mistakenly overcharged or a customer return goods back to the business. It is used to inform the customer that the over stated amount has been credited to his account, thereby reducing his debt to the business. Unlike the debit note, credit note is normally prepared with red ink.
For Example: Mr Ade who bought items worth N4,600 but was mistakenly calculated as N5,200 before later being discovered by the bookkeeper. In this situation, the business will prepare a credit note of N600 and forward it to Mr Ade to inform him that he was mistakenly overcharged and that the excess of N600 has been credited to his account. - Bank Statement: This is a statement issued by bank at a regular intervals, i.e. monthly, quarterly or yearly, stating the details of deposits and withdrawals from the account.
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