Source Documents: From Receipt to Ledger

TEST DRAFT — NOT FOR PUBLICATION

A receipt tells you money moved. It does not, by itself, tell you what the business earned. To turn paperwork into useful accounts, connect the event, its evidence, the journal entry and the ledger balance.

Source documents are records that help explain a transaction: what happened, when, for how much and with whom. A journal records the accounting entry. A ledger collects entries by account so the business can see what it owns, owes, earns and spends.

Follow a fictional service company

A small service company starts with CU20,000 of owner cash and buys equipment for CU6,000. CU means illustrative currency units. It then completes a CU3,000 customer service and issues an invoice. A supplier separately bills CU400 for a service already received.

Assume accrual accounting, valid contracts, a fixed price, one fully completed service and an unconditional right to the customer payment: only the agreed payment date remains. Taxes, financing, depreciation and other measurement issues are outside this introductory example.

Each event needs its own explanation. The owner contribution is financing, not sales. The equipment purchase is not automatically a current operating expense. A customer invoice and a supplier invoice point to different sides of the business.

Trace one CU3,000 customer job

For JOB-017, start with the agreed service and evidence it was completed. Link customer invoice INV-017 to the contract or order, a dated completion record and the agreed price. Completion evidence may include an accepted deliverable; a customer signature is not a universal recognition rule. In this example, record Dr Accounts receivable CU3,000 and Cr Service revenue CU3,000. The receivable tracks what the customer owes; the revenue tracks the service earned.

When the customer later pays, match receipt RCPT-017 and the bank record to INV-017. Record Dr Cash CU3,000 and Cr Accounts receivable CU3,000. The payment settles the amount owed. Recording another sale at this point would count the same revenue twice.

From journal to ledger

Give the documents and both entries a common job or invoice reference. The receivables ledger then shows opening balance CU0 + invoice debit CU3,000 − settlement credit CU3,000 = closing balance CU0 for JOB-017. The revenue ledger contains one CU3,000 sale. The cash ledger contains one CU3,000 receipt for that job. These are job-level movements, not the company’s total cash or total receivables.

The connection matters more than the document label. An accountant should be able to start at the ledger balance and find the evidence, or start with a source document and find the entry it supports.

Compare two cases with the same amount

Case A: the CU3,000 service is complete and payment is due. Evidence supports a receivable and revenue. A later receipt settles the receivable.

Case B: on a separate job, JOB-018, the customer pays CU3,000 before any of the agreed service has begun. Cash has increased, but the company still owes the service. In this simplified example, record Dr Cash CU3,000 and Cr Customer advance / contract liability CU3,000. When the promised service is delivered, recognise the earned amount by debiting that liability and crediting revenue under the applicable requirements. Do not debit cash a second time.

Same amount, different timing, different business meaning. A bank receipt cannot decide that classification on its own.

The useful control

Before posting, connect the document to the event and period, check the counterparty and amount, and look for an entry already using that reference. Keep an accessible trail between the original evidence and the journal. Someone reviewing the ledger should not have to guess what the posting represents.

Try it yourself

Compare a supplier invoice for equipment with a supplier invoice for an already consumed service. List the evidence you need, explain the likely account classification and identify one missing fact that could change your answer.

Self-check: an invoice alone does not tell you whether an item is equipment or an operating expense. Examine what was supplied and received, its intended use and the applicable asset recognition and materiality policies. For a service already consumed, consider the expense and any unpaid liability. The limitation: document descriptions can be incomplete, and different facts or policies can change the answer.

The boundary

A complete document trail does not guarantee a transaction is genuine or that the service was performed. Reconcile contradictions and obtain further evidence before concluding. This fictional teaching example assumes accrual accounting and omits tax, depreciation, financing and other measurement questions. Actual treatment depends on the contract, applicable framework and facts. IRS sources illustrate recordkeeping concepts in a US context; they do not establish local tax duties.

The practical takeaway: keep the evidence connected, then make the accounting judgement. Filing the receipt is the start of the explanation.