GLORIOUS FIRST TREASURES ACADEMYIn the world of business, every single kobo and every item sold must be accounted for. Imagine a large supermarket like Shoprite or a local pharmacy; hundreds of people buy things every hour. If the owner does not have a system to record these sales, they will quickly lose track of their money and stock. This is where source documents come in.
Source documents are the starting point of the accounting process. They are the physical evidence that a business transaction actually took place. Without these documents, an accountant or a business owner cannot record any information in their account books because there would be no proof to back up the entry.
A source document is an original written record that contains the details of a business transaction. It serves as the primary source of information for the bookkeeping system. Whenever a transaction occurs—whether it is buying a loaf of bread with cash or purchasing a delivery van on credit—a document is generated to capture the details.
These documents are essential because human memory is fallible. A business owner might forget how much they sold a bag of cement for two weeks ago, but a source document like a receipt or an invoice will always hold that information accurately. In accounting, there is a golden rule: "No document, no entry." This means you should never record a transaction in the books of accounts unless you have a source document to prove it happened.
Source documents are not just pieces of paper; they serve several vital functions in a business environment:
There are several types of source documents used in Nigeria, depending on the nature of the transaction.
A receipt is issued by a seller to a buyer when cash is received for goods or services. It is the most common source document. When you pay your school fees or buy a shirt at a boutique and pay immediately, you are given a receipt. It usually contains the date, the name of the payer, the amount in words and figures, the reason for payment, and the signature of the receiver.
An invoice is a document sent by a seller to a buyer when goods are sold on credit. This means the buyer has received the goods but will pay for them at a later date.
A debit note is a document sent by a seller to a buyer to increase the amount the buyer owes. This happens if the seller realizes they accidentally undercharged the buyer on the original invoice. For example, if an invoice was written for ₦5,000 instead of ₦5,500, a debit note for ₦500 is sent to correct it.
A credit note is a document sent by a seller to a buyer to reduce the amount the buyer owes. This usually happens when a buyer returns goods because they are damaged, of the wrong type, or if the seller overcharged the buyer. In many businesses, credit notes are printed in red ink to show that they represent a deduction.
Vouchers are internal documents used to authorize the payment of cash. Before a company's accountant gives out money for fuel or office stationery, a "Payment Voucher" must be signed by a manager. There is also a "Petty Cash Voucher" used for very small daily expenses like transport fares or cleaning supplies.
To help you visualize what these documents look like, you can view the following educational images:
Mr. Emeka owns a furniture shop. A school buys 20 desks from him on credit (to be paid next month).
Following Example 1, the school realizes that 2 of the desks are broken. They return the 2 desks to Mr. Emeka.
A month later, the school brings ₦90,000 cash to Mr. Emeka.
Source documents are the foundation of any reliable accounting system. They provide the "who, what, when, and how much" of every business activity. By using receipts, invoices, notes, and vouchers, a business ensures that its records are honest, accurate, and organized. Understanding these documents is the first step toward understanding how businesses track their wealth and manage their relationships with customers and suppliers. Without source documents, financial management would be based on guesswork, which often leads to business failure.