A source document is the paper that proves a transaction took place, and the entry is written from the document that shows what was actually agreed and owed. Some papers start an entry. Others only lead up to one.
This skill sits at the start of source evidence and original entry. It returns every time you meet a day book, a ledger or a question that asks “from which document would this entry be made?”
Which documents start an entry, and which do not?
Think of a purchase as a short story. First the buyer asks for a price, then orders, then receives goods, then is charged, then pays. Only some of those steps create something the business owes or owns.
| Document | Who issues it | What it shows | Starts an entry? |
|---|---|---|---|
| Quotation | Seller | A price offered | No |
| Purchase order | Buyer | A request to buy | No |
| Delivery note | Seller | Goods sent | Checked against the order, no entry in most courses |
| Invoice | Seller | Goods sold on credit and the amount owed | Yes, purchases or sales day book |
| Credit note | Seller | Goods returned or an allowance given | Yes, returns book |
| Receipt | Seller | Money received | Yes, cash book |
| Cheque counterfoil | Payer | A payment written | Yes, cash book |
How do you choose the document?
- Ask what happened. Was money asked for, goods sent, goods charged, goods returned or money paid?
- Ask whether an amount is now owed or owned. Only then is an entry needed.
- Match the event to the document that proves it, using the table above.
- Note who issued it. The same piece of paper is a sales invoice to the seller and a purchase invoice to the buyer.
Worked example
Aina Rahman runs Aina Stationery, a sole trader shop. In one week these events occur with her supplier, Bintang Paper Supplies.
- Aina asks the price of 40 reams of paper. Bintang replies with a quotation of RM12 a ream.
- Aina sends a purchase order for 40 reams.
- The reams arrive with a delivery note. Aina counts 40 and confirms.
- Bintang sends invoice 2041: 40 reams at RM12 is RM480, less 10% trade discount RM48, so RM432 is owed.
- Five reams are damaged. Bintang sends credit note 305 for 5 reams at RM12 less 10%: RM60 less RM6, which is RM54.
- Aina pays what is left, RM432 less RM54, which is RM378, by cheque. The cheque counterfoil records it.
Steps 4, 5 and 6 start an entry.
The invoice goes to the purchases day book, the credit note to the purchases returns book and the counterfoil to the cash book. The quotation, order and delivery note are useful checks but record nothing owed.
Check the money: 480 − 48 = 432, 60 − 6 = 54 and 432 − 54 = 378.
The mistake to watch for
A common slip is to record the purchase from the purchase order.
Mistaken entry: Purchases RM480, taken from the order for 40 reams at RM12.
The order is what Aina wanted, not what Bintang charged. It ignores the 10% trade discount, so purchases are overstated by RM48.
The correction is to write the entry from invoice 2041, which shows the net amount of RM432. The habit to build is to circle the amount owed on the document, not the amount ordered.
Check yourself
Try these, then open each answer.
1. A customer sends Aina a letter asking how much 30 folders would cost. Aina replies with a written price. Which document is her reply, and is an entry needed?
Show answer
Her reply is a quotation. No goods have been sold and nothing is owed, so no entry is needed.
2. Aina receives a document from Bintang stating that she is charged RM270 for goods sent on credit. Name the document and the book where it is first entered.
Show answer
It is an invoice. For Aina, who bought the goods, it is first entered in the purchases day book.
3. Aina writes a cheque for RM378. Which document gives the evidence, and which book does it go into?
Show answer
The cheque counterfoil is the evidence. The payment is entered in the cash book.
Where this leads next
Next, see how an invoice and a credit note change amounts in opposite directions. You can also rehearse the ledger side with the double-entry and ledger trainer and test the whole topic in the source evidence practice set.
Some students can name every document yet still enter the wrong amount. Our teachers work from your own slips in online one-to-one Accounting tuition.