BAF3M1​ Student Copy

CHAPTER 6: THE JOURNAL AND SOURCE DOCUMENTS ​

6.2 Source Documents (pgs. 184-193)

Introduction:

●​ Most transactions are started outside the accounting department. For example,
transactions are usually initiated by the owner of the business, salespeople, department
supervisors, managers and other authorized people

●​ The accountant is informed of transactions by means of business papers that are sent to it
called ______________________________.

●​ The accounting department uses source documents as the basis for recording the
accounting entries (almost every accounting entry is based on a source document)

●​ A company is required to keep source documents on file for reference purposes, locating
errors and to auditors, source documents provide proof that the accounting records have
been prepared accurately and honestly​

Additional Supporting Documents

●​ In addition to the source documents outlined in this lesson, you may encounter other
source documents such as:​

-​ Receipts such as those for donations or postage

-​ Bills, such as hydro or telephone charges
-​ Email invoices
-​ Online banking transactions with accompanying confirmation numbers
-​ Insurance endorsement certificates
-​ Written memos from the owner
-​ Bank statements
-​ Cash register tapes

Example: ​
Masthead Marine

●​ Several basic source documents will be explained and illustrated in the next few pages.
●​ Each source document will have its own journal entry
●​ Masthead Marine, owned by David Scott, is in the business of selling boats, marine equipment,
and boat parts and supplies.
●​ Note: Their revenue account is called ‘Sales’
1. Cash Sales Slip: A business form showing the details of a transaction in which goods or
services are sold to a customer for cash.

●​ Usually an original and two copies (accounting copy and file copy)

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General Journal Page _______

Date Particulars P.R. Debit Credit

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2. Sales Invoice: A business form showing the details of a transaction in which goods and
services are sold on account. ACCOUNTS RECEIVABLE

o​ Usually an original and several copies ​

(customer, accounting department, shipping department and file copy)
o​ Vendor: The party that sells
o​ Purchaser: The party that buys
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General Journal Page _______

Date Particulars P.R. Debit Credit

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3. Point of Sale Summaries: A computerized sales register that allows a business and its
customers to exchange funds electronically.

o​ Credit Cards (VISA®, MasterCard ®) and Debit Cards are common forms of payment​

o​ Referred to as a “host reconciliation” because the business (the host) will compare the
total to an amount that will appear on the bank statements CROSS REFERENCE WITH
BANK STATEMENTS ​

o​ Transaction Log: A document generated by a point of sale terminal that contains

detailed information about each transaction (a common POS -POINT OF SALE-
Summary)​
- This information includes each customer’s name and card number​
- Used for reference and is useful when a customer disputes a transaction​

o​ * Credit/Debit Card transactions are treated as cash receipts from the business’s point of
view.

General Journal Page _______

Date Particulars P.R. Debit Credit

4. Purchase Invoice: A business form representing a purchase of goods or services on account.

o​ It is the name used in the office of the purchaser to differentiate between its own sales
invoices and those of its suppliers ​

o​ Example: Company A (the purchaser) buys goods from Company B (the vendor).
Company B sends a Sales Invoice to Company A. When the invoice arrives to Company
A, it becomes a purchase invoice. ​

o​ The account debited will depend on what particular goods or services are purchased.​

o​ The account credited will always be the same – Accounts Payable ​

o​ *Journal Entry - posted by purchaser

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General Journal Page _______

Date Particulars P.R. Debit Credit

Another Purchase Invoice Example:

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General Journal Page _______

Date Particulars P.R. Debit Credit

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5. Cheque Copy: A document supporting the accounting entry for a payment by cheque.

o​ Cheques may be issued for a number of reasons:​

- Cash Purchases​
- Wages​
- Owner’s withdrawals​
- Payments on account​

o​ Most cheques are issued to pay for things previously bought on account and supported by
purchase invoices on file. The purchase invoices being paid are summarized on the
tear-off portion of the cheque ​

o​ The Debit part of the journal entry depends on the nature of the transactions​

o​ The Credit part of the journal entry is always to Bank

General Journal Page _______

Date Particulars P.R. Debit Credit

6. Cash Receipts Daily Summary: A business paper that lists the money coming in from
customers.

o​ The cash receipts list is the source document for the accounting entries for cash receipts​

o​ This list shows the names of the customers, the dollar amounts, and what the amounts are paying
for in each case​

o​ To help prepare this form, the clerk uses the information on the tear-off portions of cheques
received, or remittance advices sent along with the cheques​

o​ Remittance Advice: A form accompanying the cheque explaining the payment. Sometimes it is
no more than a copy of the invoice

General Journal Page _______

Date Particulars P.R. Debit Credit

7. Bank Advice (Bank Memo): Used when there is a change in the bank account of a business.
The bank informs the business of such a transaction by means of a bank advice/memo

o​ Two Types:​
1. Bank Debit Advice​
2. Bank Credit Advice ​

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a. Bank Debit Advice (Bank Debit Memo): A bank document informing the business of a
decrease made in the business’s bank account ​ ​ ​ ​ ​ ​ ​

General Journal Page _______

Date Particulars P.R. Debit Credit

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b. Bank Credit Advice (Bank Credit Memo): A bank document information the business of
an increase made in the business’s bank account

*Interest earned on savings account - March 9, 20– in the amount of $90.00

General Journal Page _______

Date Particulars P.R. Debit Credit

 Summary of Source Documents and Related Journal Entries ​
See the Chart on Page 192

Source Document Transaction Description Journal Entries

Account(s) Debited Account(s) Credited
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Cash Sales Slip; POS A sale of goods or services for cash Bank Sales or Revenue
Summaries​

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Sales Invoice​ A sale of goods or services on Accounts Receivable Sales or Revenue
account​

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Purchase Invoice A purchase of goods or services on 1. An expense account ​ Accounts Payable
account (Ex. Advertising Expense)​

2. An asset account​
(Ex. Supplies, Equipment)​

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Cheque Copy 1. Paying an account payable​ 1. A liability account ​ Bank
(Ex. Accounts Payable)​
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2. Cash purchase of an asset *​ 2. An asset account ​
(Ex. Automobile)​
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3. Cash payment for an expense*​ 3. An expense account ​
(Ex. Car Expense)​
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4. Owner withdraws money for 4. The Drawings account
personal use​

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Cash Receipts ​ The cheques received from Bank Accounts Receivable
Daily Summary customers on account​

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Bank Debit Advice​ Bank account decrease Interest Expense or other Bank
(Bank Debit Memo)​ account​

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Bank Credit Advice​ Bank account increase Bank Interest Earned or other
(Bank Credit Memo) account ​

*Must be accompanied by a bill or receipt

HOMEWORK: pg. 193 Review Questoins #1-21 & pgs. 193-196 Exercises #1-5