What is the purpose of a source document in the accounting process?

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Restating the question and options to set the stage: What is the purpose of a source document in the accounting process?

Option a: 'Source documents are only reported in the Balance Sheet.' This is incorrect because source documents are not reports themselves; they are records or proofs of business transactions and are not limited to one financial statement. They provide the initial evidence for entries, not a statement of position like a Balance Sheet.

Option b: 'Amounts listed on source documents are posted directly into ledger accounts.' This is misleading. While source documents contain the figures, they are not posted directly to the ledger. The normal flow is: source document → journal entry (or book of original entries) → posting to the ledger. The posting step uses the journal entry as the record of the transaction, not a direct transfer from the source document.

Option c: 'A source document provides evidence that a transaction has occurred.' This statement captures a core function of source documents: they serve as evidence that a transaction took place, containing details such as date, amount, parties involved, and nature of the transaction. They support auditability and accuracy in financial records.

Option d: 'Source documents are the output of the accounting process.' This is incorrect because source documents are inputs to the accounting process, not outputs. Outputs are financial statements and reports, while source documents originate from business activities and feed the accounting system.

In summary, the essential role of a source document is to document and prove that a transaction occurred, providing the factual basis for subsequent entries in the accounting records. The other statements mischaracterize the source document’s function or misstate the flow of information in the accounting cycle.

MUF0022 Accounting Unit 2 - Semester 2, 2025 Quiz: Unit 1 Revision

What is the purpose of a source document in the accounting process?

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