Which Of The Following Is The Best Definition Of A Source Document In The Accounting Process?

The correct option of this multiple choice question is (B), as a Source Document provides evidence of a financial event that a Business Transaction took place between or among parties. It is the basis of recording business transaction into the accounting system i.e., once a monetary event occurred it now becomes part of accounting records and a business transaction is recorded in the Books of Accounts. That transaction is firstly recorded in Journal and then posted in concerned Ledger’s accounts. No monetary transactions are entered into the accounting system without a source document. Now, due to computerized accounting system, it is very easy to generate source documents whenever business transaction occurred between two parties. For example, if Mr. A sold goods to Mr. B for cash $500, then it is a monetary transaction, which took place between Mr. A and Mr. B for business purposes. Mr. A is a seller while Mr. B is a buyer. Here source document is used from seller, Mr. A, who is sole proprietor, is a sales invoice which is issued to Mr. B as an evidence that an event took place between Mr. A and Mr. B for business purpose i.e., Mr. A sold goods to Mr. B (a buyer) for $500 for cash. Similarly, for banking transaction records, the bank issued bank statement as an evidence for the monetary transactions took place between the bank and the customer.

When the seller received cash from customer for good sold or services rendered, then receipts is issued as an evidence that the seller has received the amount cash.

When the business purchased goods or services for cash, then purchase invoice as evidence that purchases made for cash.

Examples of source documents include, invoices, receipts, cash memos, purchase order, sales order, etc.

The option A and B are incorrect choice here as a source document is not used for such purposes.