Your accounting practices are vital to the success of your business. When you don’t get them right, there can be problems. And source documents provide accounting paper trails which ensure that you know exactly what’s coming in and going out.
Source documents like canceled checks and receipts need to be retained in a coherent manner (no shoe boxes allowed – although we’ve witnessed this method). They serve as detailed documentation that transactions have occurred and provide the kind of details which makes it easier for internal stakeholders to interpret them, leading to greater control and efficiency.
Key Types of Source Documents
What a good source document achieves is to identify the parties to the transaction, the amount involved, as well as the date and amount of money involved. Following are some key types of source documents.
- Checks and check vouchers
- Contracts and leases
- Credit memos to refund customers
- Time cards (payroll)
- Purchase orders
- Bank deposit slips
You can see clearly from this list that the nature of the documents involved makes them essential. They’re the source of all transactions, documenting and detailing them. They’re what you need to create the conditions necessary to build stronger internal controls and accurate financial reporting.
Sources Are Key
Just as journalists need sources, so do bookkeepers. They’re your financial investigative journalists, using source documents to establish the veracity of entries in your general ledger and journals.
Whether you continue to retain and file paper records or discard the paper after having scanned source documents (the original isn’t necessary), it’s crucial that you keep them in a secure, organized format that’s resistant to loss and damage. Without them, you’ve got mystery accounts that mean nothing without the source document.
Timely recording of transactions expressed by these documents is also an imperative, especially bookkeeping entries.
All records retained must be legible, complete and easy to retrieve.
At Tax Time
All financial documents of your company must be retained for at least 2 years. Some documents, however, must be retained indefinitely, as defined by the Internal Revenue Service. Much depends on the type of business you’re doing. But if you’re audited, you’ll need as much information as you can provide, so maintaining documents long-term is never a bad idea. Be sure to know what’s required of your business by the IRS.
Because if the IRS comes calling, they’ll want access to source documents for a representative period to ensure the veracity of your corresponding entries in the general ledger.
Retaining source documents shouldn’t be considered a burden. Remember that these documents can work for you. With these in hand, you’re able to revise older returns to claim credits and refunds which may have been missed the first time around.
And retaining solid records works in your favor when considering a merger or sale. Potential partners and buyers will want to examine your history in terms of profit and use that information to project potential revenue. When your record-keeping game is strong, you’re a hot property!