Chapter 2, Problem 1QS

To determine

Concept Introduction:

Source documents are proof that an accounting transaction has occurred. They can be either hard or electronic form, source documents are objective and reliable evidence about the transaction and events and their value.

The items that can serve as source documents from the given list.

Answer to Problem 1QS

1. Sales receipt.
2. Invoice from the supplier.
3. Bank statements.
4. Telephone bill.

Explanation of Solution

Items that serve as source documents are explained below:

1. The sales receipt is a transaction record that a seller issues at the time of sales, it acts as proof of sales transactions and thus, can act as a source document to record sales.
2. An invoice from a supplier is a proof of purchase transaction that includes the details of goods purchased and thus, can serve as a source document.
3. The bank statement shows all the receipts and payments made from the bank during a specified period, it can serve as proof of transaction, and thus, can be treated as a source document.
4. The telephone bill shows the telephone expense during the month, it is a source document for recognition of telephone expenses.

Items that cannot serve as source documents are explained below:

1. A trial balance is a statement prepared after posting the transaction to ledgers, to check the arithmetic accuracy of the transactions, it is a statement prepared for internal use and cannot serve as a source document as it does not include important information such as date, and value of the transaction.
2. The balance sheet shows the financial position of a business prepared at the end of the year, it cannot serve as a source document as it includes totals of accounts such as assets, liabilities, and equity.
3. A prepaid insurance account is a ledger account that shows insurance paid in advance, it cannot serve as a source document as it only includes the value of unexpired insurance.
4. Company revenue accounts show the total revenue during a period and thus, cannot serve as a source document.
5. The income statement is a statement that shows the total of various expenses and revenue and resulting profit or loss, it cannot serve as a source document as it includes balances of expenses and revenue accounts only.