How does anyone know a journal entry is accurate and not just made up? The principle of objectivity requires that accounting data be free from any bias and be verifiable to support the values used to record transactions — and "verifiable" means there's a real piece of evidence behind every entry. That evidence is called a source document.
Buying and Selling on Credit
- A sales invoice is the bill completed by the seller and given to the buyer as a record of a credit sale — from the seller's side, it's the source document for a debit to Accounts Receivable and a credit to Revenue.
- A purchase invoice is the bill received by the purchaser as proof of a purchase on account — from the buyer's side, it's the source document for a debit to whatever was bought and a credit to Accounts Payable.
Same paper, two names
A sales invoice and a purchase invoice are very often literally the same document — the seller calls it a sales invoice, and the buyer who receives a copy calls it a purchase invoice, because each business is recording the opposite side of the same transaction.
Cash and Cheques
- A cash receipt is the source document proving cash was received.
- A cheque itself is the source document for a cash payment made by cheque.
- An endorsement is the signature placed on the back of a cheque by the person or company depositing it. A restrictive endorsement is an instruction on the back of a cheque (like "For deposit only") to control what happens to the funds — it prevents the cheque from being cashed by anyone other than the intended account.
- A bank credit memo is used as the basis for increasing a customer's bank account (for example, interest earned). A bank debit memo is used as the basis for decreasing a customer's bank account (for example, a bank service charge).
Organizing Source Documents for Entry
Before a transaction is typed into computerized accounting software, its source document is often first summarized on a data entry sheet, which organizes the accounts to be debited and credited, the amount, and the explanation of the transaction — essentially a journal entry written out by hand as a bridge between the paper document and the software.