Top 6 relevance of source documents to your organisation.
- Audit Trail
Audit trail is a set of accounting documents that authenticate the transactions you record in your accounting books. It provides evidence that transaction has occurred. During audit, source documents serve as back up for accounting journals and ledgers. Every business owner, are responsible for recording the company’s transactions. Engaging a competent accountant who can keep record either in hard copy or through the computer system. There is need to keep adequate records. Proper accounting records will acts as an audit trail for your business in case there is fraud investigation.
Audit trail will help to track and verify a source of accounting transaction. When you record transactions in your books, you base the entries on your business’s transactions and events. Business events include things like purchases, sales, discount received, assets and expenses.
For source document to serve as audit trail, it must have to include information about what the event was, who created the event, and the day and time the event happened.
In case of fraud, through sources document one will be able to verify whether or not an accounting entry actually occurred.
A situation where there is adequate record and documentation of source documents fraud related issues will be minimal compare to where no source document exist. Where there is no source documents, if fraud occurs auditor will not have document to fall to for investigations.
- Full Details of Transactions
It reveals all the basic fact about the transaction such as the amount of the transaction, to whom the transaction was made, the purpose of the transaction, and the date of transaction, serial number of the document, name of document such as Local Purchase Order (LPO), receipt, particular of person issuing the document, particular of person authoring the document, name of company/department issuing the document and name of company/department receiving the document.
With all these detail well stated on the source document, it will be difficult for those involve in the transaction to get involve in fraudulent activities in this particular transaction except where there is no internal control.
- Internal Control System
Internal controls system are the devices, rules, and measures effected by a company to ensure the integrity of financial and accounting information, uphold accountability, and prevent fraud. Source document is a good internal control mechanism.
Source document implantation is an effective internal control structure in any organisation. Fraudulent activities will be minimized in situation where there is proper internal control system in place.
- Assist Accountants
Source documents assist accountants to prepare financial statement which auditor need for investigation. The movement starts from source documents to journalising of transactions. Journal to posting into ledger. Posting is the process of transferring journal entries to the general ledger or subsidiary ledgers, depending on the needs of a company, by account. The general ledger will be balanced and form a trial balance to ensure the two size are balance. Thereafter, the financial statement which includes statement of profit or loss account and other comprehensive income.
In the accounting world, source documents include purchase order, sales invoice, bank statement, and receipts. These are anything that documents a transaction. Source documents are created any time a business spends or receives money. In case of any investigation into a transactions says fraudulent withdrawal from the bank, the bank statement which is one of the source document will serve as reference point.
- Correct Errors
Sources document one will be able to verify whether or not an accounting entry is accurate or correct. It is use to correct errors and omission of transactions. Situation where staff will deliberately omit or cause error to occurred will be detected with the investigation of the source documents.
Source documents helps to reconcile with the balances in accounts to see if either some documents have not been recorded, or if some transactions recorded in the accounts do not appear to have any supporting source documents. With regular reconciliation, fraudulent activities will be reduced.
Originally published at https://ohimaiconsulting.com.