Books of Account and Source Documents


Procedure of recording transactions in the books of account

The job of recording transactions in the books of account is basically delegated to a bookkeeper. Just because it is the job of bookkeeper to record every transaction doesn't mean bookkeeper can blindly enter any transactions in the books of accounts. On contrary, there is a lengthy procedure that a bookkeeper has to follow before he/she can record a transaction. First of all, a bookkeeper needs an evidence of the transaction and secondly, bookkeeper requires authority or permission to enter a transaction in the books of account

Source documents such as utility bills, invoices, memos, notes, credit notes, receipts etc provide the evidence of a transaction’s occurrence

Whereas, a bookkeeper can obtain permission to record a transaction in the books of account from a higher authority such as accounts manager, controller, supervisor etc


To illustrate this, consider the example in which production manager of ABC Company requires a machine in the production department

Step No. 1
Production manager will sent a purchase requisition to generally manager

Step No. 2
General Manager after getting satisfied approves the purchase requisition. Now, Purchase requisition goes to the purchase department

Step No. 3
Purchase department places a purchase order to a supplier/vendor/seller for the purchase of machine

Step No.4
The supplier/vendor/seller sends the machine and issues a purchase invoice

Step No. 5
All documents including purchase invoice are given to the bookkeeper of ABC Company. He uses these sources documents to prepare a voucher and gets it signed or approved by the general manager to enter the transaction in the books of account

Some important sources documents

Invoice

Invoice is also known as bill. An invoice is a commercial document issued by the seller (or business) to a buyer stating the name and description of products, quantity of goods, agreed price of goods etc.

If goods are being purchased on credit, invoice may indicate the max days or months to repay the debt

Invoice is a legal document which means it can be served as an evidence of sales contract engagement

An Invoice provides the basis or evidence to record sales of goods or purchases of goods/services in the books of account

> What are the contents of an invoice?

> What are the applications of a sales invoice for a business?

Credit note

Also referred to as credit memorandum or credit memo

A credit note is a written instrument or document sent by business to the customer for agreeing to take back the goods which are being returned by the customer. Business or seller will then return money either the full or partial price of goods.

Credit note No. is entered in sales return journal and it is useful for a business in its future transactions

A credit note provides the basis or evidence to record sales return or return inward in the books of account

> What are the details that a credit note provides?

Debit note

Also referred to as debit memorandum or debit memo

A debit note is a written instrument or document sent by the customer to a business describing reasons and giving the full details of goods being returned by them.

Debit note No. is entered in purchase return journal and it is useful for a business in its future transactions.

A debit note provides the basis or evidence to record purchases return or return outward in the books of account

In addition to these, there are several more source documents that provides a bookkeeper with the evidences of transactions for example, utility bill acts like a sources document for recording electricity expenses, salaries of employees might be evidenced by payrolls and transactions related to lease can be proved by contract papers

> What details does a debit note show?