Check and verify supporting documentation

The first step in ensuring data accuracy is by checking the supporting source documents.

Source documents provide evidence of a valid transaction. As they are used as the basis for accounting records it is important that they are accurate and reliable.

All transaction information and data that relates to your business will need to be recorded and compared with its source document and your organisation’s processing system will need to keep a record of each source document.

Source documents

Source documents is an accounting term to describe the original records that contain the details that substantiate the financial transactions that are entered into the internal accounting system of a business. Typical source documents include sales invoices, cash receipts, cash register slip, credit notes and deposit slip. Source documents provide the documentary evidence of a business deal or accounting event and are a critical part of an audit trail that establishes the authenticity and tracking the history of an accounting system's financial records.

The accounting process relies on inputs in the form of data taken from source documents that are generated whenever financial transactions occur.

Source documents ensure that there is documentary evidence to support the purchase or sale of items of value and the receipt and payment of money. Source documents provide the evidence or proof that a transaction has actually occurred which makes it difficult for people to misappropriate or steal cash or other resource items from the business. These source documents are also required by both company and tax auditors. It is therefore critical when implementing an accounting process to ensure source documents are checked and verified for completeness and accuracy.

The details from the source document should be recorded in the appropriate accounting journal as soon as possible after the transaction has occurred. After recording, all source documents should be filed away in a document system where they can be retrieved at a later date if required.

Source documents are the physical basis upon which business transactions are recorded. Source documents are typically retained for use as evidence when auditors later review a company's financial statements and need to verify that transactions have, in fact, occurred. Generally, the Australian Taxation Office (ATO) requires you to keep your written evidence for five years from the date you lodge your tax return and the Australian Securities & Investment Commission (ASIC) requires you to keep forms and documents for a period of seven years.

Information contained in a source document

A source document should describe all the key aspects of the transaction such as:

• the names and addresses of the entity buying/selling the good/services
• the date when the transaction occurred
• the amount of the transaction
• the amount of any taxes
• the nature and purpose of the transaction (i.e. descriptions)
• the special terms and conditions of the transaction (i.e. discount, payment and delivery details)
• authorized signature for payment or acceptance of goods/services

Examples of source documents

A source document does not have to be a paper document. Some examples of source documents are:

• Bank statements: This contains a number of adjustments to a company's book balance of cash on hand that the company should reference to bring its records into alignment with those of the bank.
• Cash register tapes: This can be used as evidence of cash sales, which supports the recordation of a sale transaction.
• Point of sale (POS) payment record: A “point” of sale payment record is generated when a customer and merchant exchange products or services completing a POS transaction. POS systems are places where customers execute the payment for goods or services and where invoices are issued.
• Credit card receipts: This can be used as evidence for the disbursement of funds from petty cash.
• Packing slips: This describes the items shipped to a customer, and so supports the recordation of a sale transaction.
• Sales orders: This document, when coupled with a bill of lading and/or packing list, can be used to invoice a customer, which in turn generates a sale transaction.
• Supplier invoices: This is a source document that supports the issuance of a cash, cheques, or electronic payment to a supplier. A supplier invoice also supports the recording of an expense, inventory item, or fixed asset.
• Timecards: This supports the issuance of paycheques or electronic payment to an employee. If employee hours are being billed to customers, then it also supports the creation of customer invoices.
• Internal memo: An internal memo records transactions between the business owner and the business. For example, if the business owner contributes his own vehicle to the business or if the owner takes stock from the business for his own use.
• Cheque butts: this source document can be used to support the payment of a bill.

Information contained in a source document 

A source document should describe all the key aspects of the transaction such as: 

• the names and addresses of the entity buying/selling the goods/services 
• the date when the transaction occurred 
• the amount of the transaction 
• the amount of any taxes 
• the nature and purpose of the transaction (i.e. descriptions) 
• the special terms and conditions of the transaction (i.e. discount, payment and delivery details) 
• authorised signature for payment or acceptance of goods/services 

Adjustment notes 

Adjustment notes are used to correct an error in a previous document. For example, if an invoice incorrectly charges you for an item you did not receive, the supplier will need to issue an adjustment note. 

An adjustment note should normally contain the same information as the original transaction invoice document. It will have its own adjustment note number and can include the original document number as a cross-reference. The incorrect information on the original document will be shown on the adjustment note and the error that has taken place.

Cheque butts 

A cheque butt is the other half of a completed cheque that is left in the cheque book after having been torn out. A cheque butt will generally contain the following information:

• Date 
• Payee 
• Amount 
• Opening and closing balances 
• Cheque number 

Cheque butts serve as a viable reference tool as they can be used by bookkeepers as a method of verification against transactions on bank statements. 

Credit notes

Credit notes are used when customers return goods to a supplier. Credit notes are similar to invoices but instead of being invoiced for goods, you are receiving a reimbursement from the supplier.
You may return items to a supplier for many reasons including:

• Wrong item was delivered
• Unhappy with the quality
• An item that you didn’t order was delivered

The information that is included in a credit note is:

• a transaction date
• supplier details
• item details
• amount including GST for the transaction.

It could also show an authorisation number or an original invoice number to allow easy cross-referencing. The credit note is the evidence you have of a supplier acknowledging the returned goods and showing that they are making an adjustment to the purchaser's account.

Invoices

An invoice is a request for payment for goods or services delivered by a supplier or organisation. Tax invoices for taxable sales of less than $1,000 must include the following information:

• Wording to identify that the document is intended to be a tax invoice
• The seller's identity
• The seller's Australian business number (ABN)
• The date the invoice was issued
• A brief description of the items sold, including the quantity (if applicable) and the price
• The GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, such as a statement which says 'Total price includes GST'
• The extent to which each sale on the invoice is a taxable sale 

Tax invoices for sales of $1,000 or more need to show the buyer's identity or ABN.

Purchase orders

A purchase order is the list of goods/services that an entity wants to be supplied with. It is sent to a supplier to confirm the order. A purchase order can include agreed prices but not all will include cost details. If you use purchase orders in your organisation, check the invoice against the purchase order for accuracy in quantity, description, and price.

Receipts

A receipt is a document that is issued at the time of payment for the delivery of goods or services. It will provide all of the necessary information that the purchaser will need to know, such as the date of purchase, item details, payment details, and the purchase amount. Receipts are issued at the time of payment and show the goods or services have been paid for. An invoice can be used as a receipt.

Tax invoices

Tax invoices are similar to regular invoices except they include the supplier's ABN (Australian Business Number) and GST amounts. A tax invoice should clearly state that it is in fact a tax invoice. If it does not, then the GST credit cannot be claimed.

If the invoice is for goods or services costing more than $1000 it will need to include the purchaser's details including their name or their business name, address, and ABN. The GST charged on the invoice must be displayed as a separate amount then added to the purchase amount to make the total.

Checking source documents

When supplies are delivered or received, your business will need to inspect the source documents before the delivery is signed for. You will be checking to see if the information in the source documentation matches the information associated with the transaction. Any transaction information that is entered into a computer system will also need to be checked for accuracy.

For the receipt of goods or services you should check:

• The document is the correct one for the delivery 
• You did order the goods or services
• Quantity
• Description
• Price
• Quality
• All details are consistent across the source documents

Your organisation will have policies and procedures relating to expenditure and to general financial transaction processes. All personnel involved in the financial department/section of the organisation will need to know what is required.

Cheque requisition

A cheque requisition is a key document for controlling cheque payments. It is a way to regulate and standardise the method for each cheque that is drawn up and is an important part of the accounts payable process. You will complete the cheque requisition prior to signing the cheque, after which it is given to the cheque signatory with all supporting documentation attached. The signatory will sign the cheque and the cheque requisition form.

Cheque requisition forms serve the purpose of:

• Making payments for purchases of goods and services
• Requesting that a cheque be prepared and issued outside of the normal procedures for urgent payments
• Obtaining a signature and authority for an account that doesn’t normally have the authority for paying invoices

Organisations will have their own policies and procedures in place for the handling of cheque requisitions, however, requisition forms generally include:

• Current date
• Payee-complete name and address of individual/company to be paid
• Payment description, including amount
• Account to be charged
• General ledger 
• Account number 
• Invoice number
• GST
• Total
• Signature of employee generating cheque requisition
• Signature of authorised  person within department

Cheque Requisition Form
To:	Accounts office
From:	Warehouse
Date:	24/01/2020
Cheque details
Payee Name:	Dig Deep Pipes
Payee Address:	56 Queen Street South Bayside 7845
Purpose:	Pipes and fitting
Amount:	$4,500.00
Name and signature of person preparing cheque
Form completed by:	John White
Signature:	John White
Name and signature of person authorised to sign cheques
Name of authorised signature:	Peter Paul
Authorised signature:	Peter Paul
Cheque number:	12674
Date paid:	28/01/2020
GL Account Number:	6300 - purchases

All mandatory parts of the form must be completed correctly and the appropriate documentation must accompany it. It is your responsibility to ensure that the required evidence is provided and also to ensure that the appropriate authorisation has been received before allocating a payment.

Checking source documents is an important step of being an accountant and bookkeeper. 

For this learning checkpoint, you will be required to complete the workbook attached and complete the following activities.

Task 1 

Task 2

Byron Jones runs a garden centre. Identify the source documents he could provide to his accountant to evidence the following transactions.

List the source document Byron would have to evidence the following transactions.

Task 3

Identify the 8 pieces of information required to be listed on a tax invoice for a sale over $1000. For more information visit https://www.ato.gov.au/Business/GST/Tax-invoices/