Week 3 – Answer Key: Source Documents & Recordkeeping

Concept 1

What Are Source Documents? — Answer Key

Source documents are original records that provide evidence of a financial transaction. They contain details such as the date, amount, parties involved, description of goods or services, and payment or authorization information.

They serve to:

Support the accuracy of financial records.
Provide legal and audit evidence.
Form the basis of journal entries.
Maintain a clear and traceable audit trail.

Without complete source documents, transaction entries cannot be verified, and the reliability of financial statements is compromised.

Concept 2

Types of Source Documents — Answer Key

Customer Invoices (Issued)

Created by the business when billing a customer for goods or services. Supports Debit Accounts Receivable and Credit Sales/Revenue.

Vendor Bills / Supplier Invoices (Received)

Received from vendors when the business owes money. Supports Debit Expense or Asset and Credit Accounts Payable.

Purchase Orders (POs)

Internal documents authorizing purchases. Used to control spending and to match with vendor invoices and receiving documents.

Receipts

Proof that a payment was made. Often used for expenses, reimbursements, and petty cash transactions.

Bank & Credit Card Statements

Summaries of transactions used to verify cash and credit balances and to perform reconciliations.

Timesheets / Time Cards

Records of hours worked by employees. Used to calculate payroll and allocate labor costs.

Deposit Slips & Sales Receipts

Document cash/check deposits and immediate sales. Support cash receipts and revenue entries.

Contracts & Agreements

Legal documents governing long-term obligations and revenue (leases, loans, service contracts, etc.).

Concept 3

Internal vs. External Documents — Answer Key

Internal Source Documents

Purchase orders created by the company.
Timesheets and time cards completed by employees.
Expense reimbursement forms and petty cash vouchers.
Internal approval forms and memos.

External Source Documents

Vendor invoices and bills received from suppliers.
Customer checks, ACH notices, and remittance advice.
Bank and credit card statements from financial institutions.
Government correspondence (IRS, state tax, regulatory agencies).

Internal documents support internal control and authorization, while external documents provide stronger, third-party audit evidence.

Concept 4

Document Flow Through the Accounting Cycle — Answer Key

Example A — Accounts Payable (AP) Flow

1. Purchase order created internally and approved.
2. Goods received with packing slip or delivery note.
3. Vendor invoice received and matched to PO + packing slip.
4. Invoice entered into AP ledger.
5. Payment made via check/ACH and documented.
6. All documents filed together for reference and audit.

Example B — Accounts Receivable (AR) Flow

1. Service provided or goods delivered.
2. Customer invoice issued.
3. Payment received (check, cash, ACH, credit card).
4. Deposit slip prepared and deposit made.
5. Bank statement later verifies the deposit.

Example C — Payroll Flow

1. Employees submit timesheets.
2. Supervisor reviews and approves hours.
3. Payroll is processed and paystubs created.
4. Payroll journal entry recorded.
5. Payroll tax filings prepared and payments made.

Concept 5

Recordkeeping Systems & Filing — Answer Key

Paper Filing — Correct Methods

Organize AP invoices by vendor or by month/year.
Maintain separate folders for AP, AR, Payroll, Bank, and Contracts.
File documents promptly and consistently.

Digital Filing — Best Practices

Use a clear folder hierarchy (e.g., /Accounting/2025/AP/).
Adopt consistent naming conventions such as:
2025-03-02_Staples_$54.27_OfficeSupplies.pdf
Attach documents directly to transactions inside accounting software when possible.
Ensure regular backups and restricted access to sensitive files.

Poor recordkeeping increases the risk of lost documents, audit issues, and inefficiency.

Concept 6

Record Retention Requirements — Answer Key

While exact requirements vary by jurisdiction, general guidelines used in class:

Tax returns and supporting records: ~7 years.
Payroll records: at least 4 years (often 7 recommended).
AP/AR invoices and related support: ~7 years.
Bank statements and reconciliations: ~7 years.
Contracts, leases, and legal agreements: life of contract + ~7 years.
Key corporate/legal documents: permanent.

The bookkeeper’s role is to ensure that documents are not destroyed too early and are accessible during audits or legal reviews.

Concept 7

Matching Documents to Transactions — Answer Key

Example mappings students should recognize:

Vendor bill entered: supported by vendor invoice, purchase order, and receiving document.
Customer sale on account: supported by sales order and customer invoice.
Cash sale: supported by sales receipt or POS tape.
Deposit recorded: supported by deposit slip and bank statement.
Payroll entry: supported by timesheets, payroll register, and paystubs.
Expense reimbursement: supported by receipts plus reimbursement request form.

Homework Solutions

Sample Homework Answers — Week 3

Assignment 1: Source Document Identification (Sample)

Document showing “Qty Ordered,” “Unit Price,” “Approved By” → Purchase Order (Internal).
Monthly electric bill from utility company → Vendor Invoice (External).
Employee time log with daily hours → Timesheet (Internal).
PDF from bank listing debits and credits → Bank Statement (External).
Thermal paper listing date, items, total, and “Paid with Visa” → Sales Receipt (External).

Assignment 2: Filing System Design (Sample)

Paper Filing Structure:

2025/
   AP Invoices/
      Jan/
      Feb/
   AR Invoices/
   Payroll/
   Bank Statements/
   Credit Card Statements/
   Contracts/
      Leases/
      Loans/
      Vendor Agreements/
      Customer Agreements/

Digital Filing Structure:

/Accounting/2025/
   /AP/
      /OfficeDepot/
      /Staples/
   /AR/
      /CustomerA/
      /CustomerB/
   /Bank/
      /Statements/
      /Reconciliations/
   /Payroll/
      /Registers/
      /TaxFilings/

Assignment 3: Document Flow Scenarios (Sample)

Scenario: Company buys inventory on credit

Purchase Order (internal).
Packing slip at receipt of goods.
Vendor invoice (external).
AP entry made in system.
Check/ACH confirmation when paid.

Discussion

Discussion Prompt — Instructor Model Answer

Why is it important to maintain a complete and accurate set of source documents?

Complete documentation ensures that every transaction can be traced, verified, and justified. This protects the company during audits, supports accurate tax filings, and deters fraud. Organized records save time, improve decision-making, and demonstrate professionalism and transparency to stakeholders.

Risks of missing or disorganized documentation:

Inability to prove expenses during an IRS or state audit.
Disallowed deductions and additional tax penalties.
Greater exposure to fraud and unauthorized spending.
Vendor and customer disputes that are difficult to resolve.
Weak internal controls and damage to the company’s reputation.

Summary

Week 3 Summary — Answer Key

In Week 3, students must demonstrate that they can recognize, classify, and properly file common source documents, understand how they flow through AP, AR, payroll, and cash cycles, and explain why strong documentation practices are essential to reliable bookkeeping and legal compliance.

These skills prepare students for Weeks 4–5, where they will use these source documents to create journal entries and post to ledgers.