Top 10 Source Documents in Accounting Every Freelancer Must Know.
Recently, a new client contacted me for my financial advice. The client has just launched a new online business with plans to expand it to multiple locations and offer digital products.
As he took the time to explain his vision, I was so impressed with his motivations. But then I quickly asked a straightforward question:
“How do you plan to monitor your income and expenses?”
He hesitated for a while and was short of words, but managed to reply:
“Honestly, I only write down all my sales and expenses in a diary”. Right there, I knew that the man had skipped a vital part of the accounting process.
This means he lacks insight into the relevance of source documents in accounting. If the client takes no action, it can lead to the loss of business since they may not know where their business data is stored.
Why Source Documents Matter to a Freelancer
In accounting, source documents are the original pieces of evidence for every financial transaction.
Some transactions cannot be classified as financial transactions, such as receiving an order without payment. That could not amount to a source document.
However, examples of source documents include receipts, records of orders received by freelancers, invoices, evidence of earnings from media, and records that prove money moved in or out of your business.
Without these source documents, freelancer or entreprenur are blind to the growth of their business.
Like I said in my previous articles, they will not hear the voice of their business.
Such freelancers cannot account for their expenses; they cannot defend their financial records if questioned, and they will struggle to make informed financial decisions at any time.
Based on my conviction that my client has failed to keep any of these source documents, I took the time to educate them that keeping these documents is not the responsibility of accountants. But they are the lifelines of any business that desires to grow and make progress.
I told him that failing to build the habit of keeping this record could lead to confusion, loss of profits, and, in the event of a legal battle, he may not have sufficient evidence to present in court.
To further educate him, I asked my staff to provide both a physical and digital copy of the Top 10 Source Documents that every freelancer must know.
The Top 10 Source Documents in Accounting
Invoice: Show sales made to accounts receivable, who you may call customers. On the contrary, it can also track accounts payable, which account for the amount owed to suppliers.
Receipts: This shows that cash payment has been received or made.
Purchase orders: Confirm goods or services requested from suppliers. Additionally, it includes the order’s content and the estimated delivery date.
Credit Notes: Issued for returned goods or adjustments in sales by the customers. These notes will reduce the amount owed by the customers.
Debit Notes: This document supports the purchase return journal. Buyers usually send a request for a credit for damaged or incorrect items.
Bank Statement: This source document shows deposits, withdrawals, and any bank charges.
Payroll Records: This source document lists employees, their salaries, allowances, deductions, and bonuses.
Expense Vouchers: These help capture small but significant daily expenses, such as petty cash.
Bills: These are coming from suppliers, which confirm the amounts the business owes.
Checks and Payment Advises: This shows evidence of payments made through banks or other channels.
To learn more about the 35 top source documents in accounting, you will need to visit the 35 provided sources.
If a freelancer or any entrepreneur decides to integrate any of the off-the-shelf accounting packages, such as Sage or QuickBooks Online, it means that some of these sources’ documents will have been integrated into the App.
The Turning Point in my Client’s Business
As we were about to review each of the source documents, I offered him a coffee to calm his nerves.
As I began to explain each of these documents to him, I noticed a realisation on his face, suggesting that he had likely failed in this aspect of recordkeeping.
In short, he openly admitted that:
“I never thought these source documents really mattered in my business. I just wanted to concentrate on buying and selling.”
In my professional consulting career, I have found that it is a common mistake made by many freelancers and entrepreneurs.
They are rushing into buying and selling without first establishing financial discipline in the business process.
However, the truth remains that for any business to grow, it must focus on managing its finances just as it generates revenue.
By the end of our discussion, he was satisfied with my explanations and was ready to introduce a proper accounting system that tracks all source documents.
This financial advice prompted the client to introduce an Excel Financial Model for tracking accounting records, with plans to upgrade to an advanced accounting package as the business expands.
As of today, his finances are well organised, giving him confidence in every financial decision he makes.
Takeaway for Freelancers
If you have been working with source documents, you will need to introduce them now.
However, if you are starting your business, you have a better chance of success if you do not ignore your source documents.
If you ignore it, that could be a costly mistake. Your takeaway for adopting source documents:
- Help the freelancer track and monitor income and expenses daily.
- Protect the freelancer from potential fraud and expensive errors.
- Make freelancer tax-compliant.
- Provide the data freelancers need to make informed decisions about their growth.
In a writing environment, a freelancer’s passion is fuel, but documentation of the accounting record is the engine. Without it, a freelancer won’t go far.
👉 Question for You:(As Freelancer or Entrepreneur)
If someone asked you right now to show proof of your last 10 business transactions, could you confidently provide the source documents?
Thanks for Reading
Check out my Gumroad for Excel Financial Model or Business plan to kickstart your entrepreneurial journey. Or your need one on one training on how to model Excel for your business
Also, I’m available on Fiverr if you need a market research plan for products launches or business expansion to new location as an entrepreneur.
