The accounting process refers to the systematic series of steps involved in recording, classifying, summarizing, and interpreting financial transactions. It begins with identifying financial transactions, followed by their documentation in journals. These entries are then posted to ledger accounts. Afterward, a trial balance is prepared to ensure the accuracy of records. Adjusting entries are made if needed, followed by the preparation of financial statements such as the income statement, balance sheet, and cash flow statement. The final step involves closing temporary accounts and preparing for the next accounting period, ensuring the accuracy and consistency of financial reporting.
Source Document:
A source document is the original record that provides evidence and details of a financial transaction in accounting. These documents serve as the foundation for recording transactions in the accounting system. They provide authenticity, accuracy, and legal support for the entries made in the books of accounts.
Source documents can take many forms, including invoices, receipts, bills, contracts, purchase orders, bank statements, time sheets, and memos. Each of these documents contains specific details such as the date of the transaction, the parties involved, the amount involved, the terms of the transaction, and other relevant data. For example, an invoice is a source document for a sale transaction, while a receipt confirms the payment made for goods or services.
These documents are essential for internal control and financial accuracy. They help ensure that every transaction is recorded properly and that financial statements are accurate and verifiable. Source documents also support compliance with legal and regulatory requirements, as they act as evidence of business activities.
When an accounting entry is made, the information from the source document is transferred to the accounting journals and ledgers. For example, when a company receives an invoice for goods purchased, the accounting team records the transaction in the purchase journal, referencing the invoice as the source document. This provides a clear audit trail and allows for easy verification if there are any discrepancies.
In addition to internal controls, source documents are critical during audits. Auditors rely on these documents to verify the legitimacy of financial transactions and to ensure that the company’s financial reporting is accurate and compliant with accounting standards.