1. The Audit Trail and Evidence
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An accountant cannot record a transaction based on memory or verbal agreements. Every entry in the accounting system must be backed by verifiable, objective evidence known as a source document. These documents establish the audit trail, allowing internal and external auditors to trace financial statements back to the original business event.
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2. Detailed Breakdown of Source Documents
Sales and Purchase Transactions
- Invoices: Sent by a seller to a buyer when goods or services are provided on credit. It details the quantity, price, terms of payment, and total tax. For the seller, it is a Sales Invoice; for the buyer, it is a Purchase Invoice.
- Credit Notes: Issued by a seller to reduce the amount a customer owes. This happens when goods are returned due to damage, or if the customer was overcharged.
- Debit Notes: Issued by a buyer to a seller to formally request a credit note, or issued by a seller to correct an undercharge.
Cash and Liquidity Transactions
- Receipts: Acknowledgments issued immediately when cash or electronic payment is received.
- Bank Statements: Monthly summaries generated by the financial institution that verify all cash movements into and out of the company’s bank account.
- Petty Cash Vouchers: Small, internal forms used to track and authorize minor cash expenses (e.g., office supplies or taxi fares).
Internal Adjustments
- Journal Vouchers (JV): Documents used to authorize and record non-cash or internal adjustments, such as depreciation or correcting errors.