Source Documents and Accounting Equation Notes Class 11th Accountancy

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Source Documents and Accounting Equation

  1. Source Documents

It is a written document which contains details of the transactions prepared at the time, it is entered into. It is also referred to as supporting document it is of prime importance as in the books of accounts. Transactions are recorded on the basis of an evidence. This evidence being the basis of recording entry are known as a source document, e.g. bills of purchases, invoices for sales, debit and credit notes etc.

  1. Cash Memo

It is prepared by the seller, for goods sold against cash. Cash memo acts as an evidence for both the seller and purchaser of goods. For the purchaser, for goods purchased against cash and for the seller, for sales made for cash. IT contains details of goods sold, quantity, rate, total amount received, date of transactions, etc.

 

  1. Invoice Bill

It is prepared by the seller, for goods sold against credit. It contains details such as to whom goods are sold, quantity of goods sold and the total sale amount. One prepares an invoice but receive a bill. These two terms are interchangeable and mean the same thing.

  1. Pay-in-Slip

It is used for deposition cash or cheque into bank. It is a form which is available from a bank having a counterfoil which is returned to the depositor with cashier’s signature, as receipt. The counterfoil gives details regarding the date and the amount(in cash or cheque) deposited.

  1. Cheque

A per Negotiable Instrument Act, “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable, otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in electronic form”.

  1. Debit Note
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A debit note is made out evidence that a debit was been made to the account of the party named in the debit note. It details the reason for the debit. The effect of a debit note is that the indebtedness to the supplier is reduced or, if the account is already settled, goods can be purchased further without payment.

  1. Credit Note

A credit note is made out evidencing that credit has been granted to a debtor. The effect of a credit note is that the amount of the customer’s indebtedness is reduced or, if it is already settled, to enable the customer to purchase goods to the value of credit without further payment.

 

  1. Vouchers

It is a document evidencing a business transaction. A voucher detailing the accounts that are debited and credited is prepared, on the basis of source documents such as cash memo, invoice or bill, receipt, pay-in-slip, cheque, debit and credit notes, etc.

  1. Types of Vouchers

Basically, vouchers may be classified into two categories as follows:

  • Supporting vouchers these are also known as source vouchers or source documents. These are the documents which come into existence when a transaction is entered into.
  • Accounting vouchers are the secondary vouchers. These vouchers are a written document prepared on the basis of supporting vouchers for accounting and recording purposes, prepared by an accountant and countersigned by an authorized person. These accounting vouchers are prepared for cash as well as non-cash transactions. Accounting vouchers may be classified into two categories a follows:
  • Cash Vouchers which are prepared at the time of receipt or payment of cash are known as cash vouchers. It includes receipt and payment through cheques.

Cash vouchers further can be of the following two types:

  • Debit Voucher these are prepared to record the transactions involving cash are known as cash vouchers. It includes receipt and payment through cheques.
  • Credit Voucher these are prepared to record the transactions involving cash payments, i.e. when payment is made.
  • Non-cash vouchers or transfer vouchers the vouchers which are prepared for transactions not involving cash, i.e. non-cash transactions are known as non-cash vouchers or transfer vouchers.
  1. Complex Voucher and Compound Voucher Complex voucher/journal voucher transactions withmultiplecredits are called complex transactions and the accounting vouchers prepared for such transaction is known as complex voucher/journal voucher.

Compound Voucher which record transactions with multiple debits/credit and one credit/debit are called compound vouchers. Compound vouchers are of two types:

  • Debit Voucher showing transactions that contains multiple debits and one credit is called debit voucher.
  • Credit Voucher showing transactions that contains multiple credits but one debit is called credit voucher.
  1. Preparation of Vouchers

There is no set format of an accounting voucher. The design of the accounting vouchers depends upon the nature, requirement and convenience of the business.

To distinguish various vouchers, different colour papers and different fonts of printing are used.

  1. Accounting Equation

A mathematical expression which shows that the assets and liabilities of a firm are equal is known as accounting equation.

An accounting equation is based on dual aspect concept which states that every transaction has two aspects debit and credit, for every debit there is an equal amount of credit and vice-versa.

Accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital (Owner’s equity).

Accounting equation may be expressed as Total Assets= Total Equities or

Assets= Internal Equity + External Equity

Or

Assets (A) = Capital(C) + Liabilities (L)

The above equation can also be presented in the following forms:

Capital = Assets – Liabilities

Or

Liabilities = Assets – Capital

  1. Effects of Transaction on Accounting Equation

Practical steps involved in developing an accounting equation:

Step 1 Ascertain thevariables (i.e. assets, liabilities or capital) of an equation affected by a transaction.

Step 2 Find out the effect (in terms of increase or decrease) of a transaction on the variables of an equation.

Step 3 Show the effect on the appropriate side of an equation and ensure that the total of right hand side is equal to the total of left hand side.

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