Question

Which of the following is the best definition of a source document in the accounting process?

1) A source document shows all the information about the legal rights a company has in relation to when it should pay a bill.
2) A source document identifies and describes transactions and is the basis for entering an event into the accounting system.
3) A source document is used to determine who hired an employee that is assigned the duty of entering transactions into the accounting process. An account is a record of increases and in a specific asset, liability, equity, revenue or expense.

Answer 1

A source document in the accounting process is a record that identifies and describes transactions, serving as the basis for data entry into the accounting system; it includes items like invoices and receipts.

Step-by-step explanation:

The best definition of a source document in the accounting process is option 2: A source document identifies and describes transactions and is the basis for entering an event into the accounting system. This more accurately encapsulates the purpose and use of source documents in accounting. Source documents are essential for creating an accurate record of transactions and include various types of evidence such as invoices, receipts, checks, and purchase orders.

These documents provide verifiable and factual information that supports financial transactions and are used to enter data into the accounting system. Reliable source documentation is critical for ensuring that financial statements are credible and comply with regulatory standards and accounting principles.