Performing financial analysis on your business with incorrect data is one of the worst things a business can do. Properly accounting for each and every individual transaction is extremely important. It is the summation of every individual transaction that culminates in a set of financial statements.
Many different aspects go into ensuring that an accountant has the means and ability to post a transaction properly. Training of the staff, timeliness of processing paperwork, a functional accounting system, and efficient workflows all contribute to seamless processing of accounting transactions. Proper maintenance of source documentation is a key and often overlooked factor to ensure proper and accurate transactions are posted to the accounting system.
Each time a company makes a financial transaction, a paper trail is generated. This paper trail is called source documents. If a small business processes payroll for its staff, for example, the source document is the payroll report with approved timecards.
Source documents contain the details that accountants need to post transactions correctly and allow for senior accounting staff members to perform effective internal controls. Additionally, source documents are the evidence that a financial transaction occurred during audit.
Good source documents should describe all the basic facts of the transaction such as the amount of the transaction, the parties involved, the purpose of the transaction, and the date of the transaction.
Good examples of common source documents include:
- Canceled checks/Check vouchers
- Leases & contracts
- Credit memos for a customer refund
- Time cards
- Deposit slips (not Bank Statements)
- Purchase orders
It is critical that your business receives good financial information. Source documents are the foundation. Managing your source documents effectively will provide better internal controls and ultimately better financial reporting. Contact your local accountant or advisor, like TGG Accounting, to help implement Best Practice strategies for source document management.Written by: Andrew Ruff TGG Accounting