Final answer:
The purpose of cancelation and storage of source documents in business is to maintain accurate financial records and support the auditing process. Cancelation marks documents as no longer valid, while storage organizes and retains them for future reference or legal purposes. This process ensures an audit trail, compliance with legal requirements, and enables financial analysis.
Step-by-step explanation:
The purpose of cancelation and storage of source documents is to maintain accurate financial records and support the auditing process in a business. Cancelation involves marking a document as no longer valid or in use, such as voiding a check or crossing out an invoice that has been paid. Storage, on the other hand, refers to the systematic organization and retention of source documents for future reference or legal purposes.
Cancelation and storage of source documents are important for several reasons:
- Audit trail: Cancelation and storage help create an audit trail, which is a chronological record of financial transactions. This trail allows auditors to trace the flow of financial information and verify the accuracy and completeness of accounting records.
- Legal requirements: Many businesses are required by law to retain certain source documents for a specific period of time, such as tax records or employment contracts. Cancelation and storage ensure compliance with these legal requirements.
- Financial analysis: Source documents, even if canceled, can still provide valuable information for financial analysis. By storing these documents, businesses can analyze trends, identify areas for improvement, and make strategic decisions based on historical data.