Source Documents

Your Financial Control Systems begin and end with your Source Documents. This is where all of your financial transactions are recorded in real time. Recording your transactions as they occur allows you to trace every transaction back to its origin, should the need arise. Some examples include invoices, cancelled cheques, and purchase orders.

Source documents are the source and confirmation of all your financial transactions. Every time you sell something, buy something, or pay an employee, that activity must be documented. It's essential that you are able to trace the source of every dollar you spend and/or earn. Good Source Documents will also ensure that all pertinent information, such as names, dates, dollar amounts, and so forth, are recorded for future analysis by management.

The same concepts apply to your source documents whether they are electronic, or physical paper copies.

It's important that your Source Documents are designed well because your entire Accounting System relies on their accuracy. Source Documents are a potentially vulnerable part of your financial system, and since they provide the primary verification for your financial activities, mistakes here can take a long time to show themselves if not caught on the spot. It makes no difference how clever your financial analysis is. Your entire Accounting System is based on the information provided by your Source Documents. Therefore mistakes will be made if your Source Documents provide inaccurate information.

Good decisions are founded on solid information, so your source documents must be complete and accurate. Poorly designed Source Documents can lead to disorganized chaos. However properly designed, they can help transactions go more smoothly, provide accurate and detailed information, and even help deter fraudulent or accidental errors.

In addition to accuracy, your Financial Control Systems must deliver financial information to your Accounting System as quickly and efficiently as possible. Since your bookkeeper becomes aware of your financial transactions through your Source Documents, the information they contain is of little value until it reaches him. Consequentially, the sooner your bookkeeper receives (and processes) this information, the more current and useful your financial records will be. Depending on your situation, it may be possible to have this process occur automatically, the moment the transaction occurs.

Following are just a few typical Source Documents, which will get you thinking in the right direction. You'll design or update your Source Documents as you design your Financial Control Systems in the following sections.

1. Sales Invoices — Track your individual sales.
2. Purchase Orders — Track your company expenditures, internally.
3. Receipts — Confirm your company expenditures.
4. Pay Records — Track your payroll expenses.
5. Cheque Stubs — Confirm your company expenditures.
6. Bank Statements — Confirm your cash inflow and outflow.
7. Cash Register Tapes — Confirm your individual sales.

Designing Your Source Documents

Consider the following when designing the Source Documents for your various Financial Control Systems.

1. Source documents must be sequentially numbered so none can go missing or be altered.
2. A copy of each source document should be filed for future reference or verification, should it be necessary. If documentation is electronic, backup copies should be made on a regular basis to safeguard against computer error and fraud.
3. When a source document is spoiled, it should be voided and filed. That way it can be accounted for, decreasing chances of misuse.
4. Develop standards and procedures to use these documents. They are of little value if they're not used consistently and correctly.
5. Your Source Documents must capture all of the information from each financial transaction that you, your bookkeeper, your accountant, the government etc. might ever need.

Consider including the following information on every Source Document.

1. Transaction date.
2. People involved in the transaction.
3. Amount of money involved in the transaction.
4. Products and/or services involved in the transaction. What was bought/sold?
5. A description of the transaction. Was it a cash transaction? Was a cheque or credit card used? Are there payment terms?