A source document is the original document that contains the details of a business transaction. A source document captures the key information about a transaction, such as the names of the parties involved, amounts paid (if any), the date, and the substance of the transaction. Source documents are frequently identified with a unique number, so that they can be differentiated in the accounting system. The pre-numbering of documents is particularly useful, since it allows a company to investigate whether any documents are missing.
Once the information in a source document has been recorded in the accounting system, the source document is indexed for easy access and archived. Documents generated within the past year are generally stored on-site, with older documents being stored in less expensive off-site storage facilities.
Source documents are critical to auditors, who use them as evidence that recorded transactions actually occurred. A source document is also used by companies as proof when dealing with their business partners, usually in regard to a payments.
Examples of source documents are:
- Cancelled check
- Credit memo
- Deposit slip
- Expense report
- Materials requisition form
- Purchase order
- Time card
- Sales receipt
For evidentiary purposes, electronic images of source documents are generally acceptable, though paper-based documentation may still be required in some cases.
It is usually necessary to retain source documents for several years. The Internal Revenue Service mandates retention intervals for some types of documents related to payroll. If there is any question regarding the retention period for a document, consult with a knowledgeable attorney.