The managerial accountant has a long preoccupation with making use of records (e.g., Ashton, 1925).5 An accounting source document (or more often, source document) is the original record containing the details that substantiate a transaction entered in an accounting system. That is, it evidences economic dealing has occurred. There may be more than one source document necessary to support transaction.
For example, purchase of merchandise requires the supplier’s invoice supported by the receiving organization’s purchase order and a receiving ticket. Accounting source documents are required for
Verifying transactions (e.g., on a month-to-month basis)
Any financial audit (e.g., end-of-year financial statement sign-off by the auditor) Satisfying the regulatory requirements (e.g., taxation)
The source documents for common economic events are listed in Table 4-9. They are an original and objective report of the economic activity represented by a transaction. Usually there are several source documents associated with a transaction, so internal control should identify all the source documents; otherwise there is the possibility of fraud. For example, manufacturing issues a single purchase requisition for the raw materials it needs to complete its job-orders for the next period.
However, some of those raw materials are used each day and therefore each allocation for the day
requires a separate source document. Source documents are sometimes referred to as the ‘paper trail’. A paper or ‘electronic’ trail gives a step-by-step documented history of a transaction. It enables an auditor to trace the financial information from general ledger to the source document (e.g., invoice, receipt, voucher, ticket). The presence of a reliable and easy to follow audit trail is an indicator that internal controls exist for source documents.
A source document includes some basic particulars about the transaction. So ideally, the source document usually contains the following information:
Name and address of the organization selling the product (or service) Date of the transaction and sometimes the time
Type of transaction (sale, refund, deposit)
Description of a business transaction (e.g., product and quantity) A specific amount of money in numerals (e.g., $1,201.57)
To whom the transaction was made (organization and any representing individual) Amount of any taxes
Any of the special terms and conditions of the transaction (e.g., discount, payment and delivery details)
An authorizing signature or equivalent confirmation for payment or acceptance of product or services
Table 4-9 Source documents for economic events.
Economic
Event Source Document Possible Use by Managerial Accountant Cash
received by the organization
Cash receipt, cash register tapes, bank
statement, bank deposit form
Understand banking efficiency using Bank Deposit form. The original is provided to the bank with the copy retained by the
organization.
Cash paid by the business
Check (cheque) butt ATM or EFTPOS
receipt Bank statement Payroll records Canceled check
(cheque)
Sales receipt efficiency in recording product or service payment from customer. The original goes to the customer with the copy
held by the organization.
Purchase receipt efficiency in recording product or payment by the organization to suppliers. The original is provided by the
supplier to the organization.
Organization gives credit to customer.
Sales invoice Credit note Debit note
Sales invoice efficiency in recording product or service details and the amount owing to the organization by a customer. The
original goes to the customer with the copy held by the organization.
Credit note controls when correcting an overcharge on an invoice (e.g., making an adjustment for goods not supplied), or accepting goods returned with or without restocking fee. Debit
note controls when correct an undercharge in the invoice.
Organization receives credit from
a supplier.
Supplier’s original invoice
Supplier’s statement, Supplier’s debit note Supplier’s credit note
Credit card receipt Credit card statement
Purchase invoice efficiency in recording product or service details and the amount owned by the organization to suppliers.
The original is provided by the supplier to the organization.
Supplier’s statement efficiency stating invoices unpaid at a particular date are within credit terms and/or settlement
discounts.
Credit card receipts efficiency and control over transactions on a credit card supported by a periodic statement.
Accounting source documents to substantiate a transaction come in many different forms depending upon the transaction.6 Table 4-10 identifies source document by common transaction with users.
Occasionally, no source document is available. This may occur where the transaction does not generate a source document (e.g., depreciation). In those cases, the managerial accountant will create a memorandum or worksheet, which is then authorized (or counter-signed) by a more senior accountant. The second possibility is that the source document is not received (e.g., an invoice is lost in the mail). Here the solution is to request a replacement (duplicate). Some organizations require source documents (e.g., petty cash claims) to be supported by written document, known as a voucher, which requires a certification from who incurred the expenditure that it was for organizational purposes as well as describing the expenditure.
The source documents for the different cost assignments are listed in Table 4-11. Usually job-order cost accounting requires that records are kept for each job order. That is, details will be kept of raw materials used, labor and overheads for each job order. There is some flexibility in the recording.
For example, some organizations still use the individual job documents described in Table 4-11 to authorize the release of materials for production. Other organizations prefer a summary sheet where details are recorded on multiple lines. For example, the time sheet records labor over a period of a week and after authorization by the supervisor, then go to the pay clerk for payment. Yet other organizations have two systems, where one document records the total amount for the effort (e.g., the employee time sheet shows their hours for the pay week), and there are other documents which are specific to the job (e.g., the employee fills out a ticket for each job order showing the number of hours worked on that job during the shift for the day). The managerial accountant often finds that many different but overlapping systems have germinated in an organization. Careful investigation may explain why different costs are available for the same cost object.
The managerial accountant uses a wide variety of source documents to obtain information for cost analyses and related purposes. In designing processes, or entire systems, the managerial accountant will investigate whether source documents can be combined or eliminated.8 The managerial accountant will also use source documents to discover whether they are being listed in non-value- adding registers or compiled into non-value-adding reports. Registers are often a sign that documents can be lost but do not prevent the loss. Reports also often proliferate in numbers and complexity to satisfy power or status needs, or as a reaction to a previous loss or failing. As always, the main question the managerial accountant will ask is, ‘What does the manager do as a result of getting
information?’. Preliminary answers may suggest that source documents should
Table 4-10 Source document used to substantiate common transactions with common users.
User Transaction Source Document Managerial Accountant’s Uses Investor Share issue Stock (share) holding certificate Proper recording in the accounting
system where there are systems and processing concerns
Dividend Dividend check (cheque) Dividend statement
Creditor Bank deposit
Bank deposit slips/forms Check (cheque) canceled Check (cheque)
stubs Bank statements
Proper recording in the accounting system where cash flows need
investigation Borrowings Notes (unsecured, debenture)
Customer Quote Price and availability quote
Proper recording in the accounting system where there are inventory or
stock quantity discrepancies Sale for
cash
Receipts for goods purchased with cash Receipts for cash received
Cash register tapes Sale on
credit Sales invoice Credit card receipts Dispatch of
product
Packing (dispatch) slip Consignment note/shipping document
Supplier Order Purchase invoices Credit note/
invoice
Proper recording in the accounting system where there are costing concerns Purchase on
credit
Credit card receipts Suppliers invoices Suppliers statements Good
received slip Dispatch of
product
Packing (dispatch) slip Consignment note/shipping document
Employee See Table 4-11.
Table 4-11 Source document for the different cost assignments.
Cost
Assignment Source Document Explanation
Direct materials
Materials requisition record showing Part number
Description
Actual quantity supplied Actual unit cost
Actual total cost
Cost of materials supplied to a specific organizational unit
Direct labor
Labor time sheet showing Employee name
Specific tasks/jobs
Time spent (hours and minutes)
Usually weekly showing time spent on jobs and time spent on general duties (e.g.,
cleaning, maintenance, training)
Manufacturing overhead
Budget for normal costs* Standard costs*
* Based on prior year transaction totals
Cost allocation bases and cost drivers guide the identification of costs.
For job orders
Job cost record AKA job cost sheet Direct material
Direct labor
Manufacturing overhead
Accumulates all costs for a specific job
Selling costs*
Payroll records for commissions and bonuses paid Invoices for advertising purchased
Expense claims approved for promotions and other events
There may also be transport invoices for product promotions.
Administrative costs*
Payroll records for service and support employees including head office employees
Operating lease or loan repayment records for vehicles and invoices for their running costs
Rental, lease or loan repayment records for premises
Invoices from councils for property rates
Invoices from utilities for water, gas and electricity
General costs*
Approved worksheets for depreciation and corresponding journals and
postings
These should be subject to internal audit checks
* Under activity-based costing, the four-category cost hierarchy ( unit level costs, batch level costs, product sustaining costs and facility
* Under activity-based costing, the four-category cost hierarchy ( unit level costs, batch level costs, product sustaining costs and facility sustaining costs) will be substituted for the selling, general7 and administrative costs.
be redesigned to at least avoid overlap, or ideally, reduce the amount of information collected.
Before this occurs, the output should also be considered.