Accounting source documents

What is accounting source document?

Also may be called as accounting supporting document. It is document, that proves existence of some economic transaction (proves fact, that on certain date, certain persons carried out some economic transaction).
For example, bank calculates bank commission (source document is bank statement), company buys goods from another company (source document is an invoice).
Based on the source documents, an accountant registers (records) transactions (activities) in accounting books.

To use document as source document, the document must contain certain details and information. Otherwise an accountant has no rights to base on a document.

Why the source document is necessary? Why it is important?

In general, source document is necessary:

• To prove to State revenue service, that you company correctly calculated taxes.
• To prove to your business partner, that your company has delivered goods, rendered services or paid for goods and services.

Every Latvian company must do accounting (must keep records). To record transaction (event) in accounting books, need a document that meets certain requirements and certify that the transaction or event has occurred.
If a document does not meet certain requirements, then an accountant has no rights to record it in accounting books, even if a transaction has occurred.
For example a director of a company or some employee in a shop buys stationery goods, that are necessary for company to do business. Payment is in cash and value of purchase (without VAT) increases 29 euro. And a cash register check (document) does not contain data about buyer, and to the check there are no attached documents that contains data about a buyer.
Unfortunately, an accountant has no rights to deem such document as a source document and has no rights to record the document in accounting books. To solve the situation, to the cash register document must add additional document, that contains necessary details.

General requirements for the source document.

Preparing document, must check and ensure that document has legal force.
If on behalf of limited liability company (SIA) some person prepares and signs a document, then must check if the signer has rights to sign the document on behalf of SIA. For example, in Latvia such rights has a member of the board of directors or a person, authorized by a director. Also must be sure that in legislation or in articles of association of SIA, there are no restrictions regarding content of a document.

If you do not verify that a certain natural person (individual) has rights to sign a document on behalf of SIA, may happen following situation.
For example, your company sells goods to another company. A natural person (individual) arrives to receive goods, sign invoice and other documents on behalf of the another company and receives goods. If the person had no rights to sign on behalf of the another company and the another company did not receive the goods, then the another company has rights not to recognize the transaction. As a result, your company for free handed over the goods to natural person (individual) and in best case your company may receive some payment from the natural person). So, during handing over goods, it is important to verify identity of receiver - natural person. Also it is important to make sure that receiver has rights to receive the goods.

You must write document in physically sustainable manner so that technically it is not easy to change the document and so that during long time you can see content (content does not fade). For example it is prohibited to write and sign document with a pencil. Preservation of information contained in the document also depends on the circumstances in which the documents are stored. For example, you should not store documents in premises (rooms) with increased air humidity.

Accounting source document must contain at least following details:

• Name of authors (parties in transaction) of document. For example, in contract: parties of the contract; in invoice for sale of goods: seller and buyer. It is deemed that result of economic transaction is change of value (for example, one party transfers / hands over to another party some value (product)).
• Registration number of authors of document (for example, registration number of limited liability company).
• For external documents legal addresses of document authors (parties of transaction). External documents are documents received from another person (company) or prepared for submission for another person.
• Type of document (invoice, cash receipt, agreement, act, statement etc.).
• Document date (date of preparation of document).
• Information about economic transaction:
  • Description, for example, sale of goods, rendering of services. Also need to list sold goods or rendered services.
  • Basis for preparation of document. For example, contract #123, concluded on 03rd September, 2018.
  • Meters: unit of measure, amount (quantity), price of one unit, total price.
• Signature (except cases, defined in legislation). For example, in article 7.¹ of the law "On accounting" there is a case when company prepares internal electronic document, and a responsible person in accordance with procedure, approved by a head of the company, has certified the electronic document. In such case no obligation to sign the document.

Unit of measure.

In accounting books (registers) amounts (prices, total prices) should record in Euro.
According to explanation of the State revenue service and taking into account requirements of the law "On Accounting", that:

• "for accounting needs must use Euro as unit of measure" and
• "in accounting books are not allowed records, which content or measures are different for source document",

in accounting source documents prices and totals also should write in Euro. Additionally you can write price in another currency.

If your company receives source document for another person and amounts (prices, totals) on the document are not in Euro, then accountant must recalculate amounts, based on Euro foreign exchange reference rates of the European Central Bank.
If for certain foreign currency there is no ECB Euro foreign exchange reference rate, then must use exchange rate, published in periodical or website of information provider, recognized by global finance market.

In what language must prepare source documents?

According to Article 6 of the law On Accounting and actual situation (attitude of tax authority), source documents must be in Latvian language. If transaction partner (buyer, service receiver) is non Latvian, then additionally can write text in another language (for example, invoice in Latvian and English).
Taking into account Article 9 of Official Language Law if you conclude agreement about public service provision within Latvia, then the agreement either must be in Latvian or must add translation into Latvian to the agreement.

Types of source documents.

In the legislation source documents are divided into:

• External source documents. These are documents, that your company receives from other persons, - other companies (for example, sellers of goods, service providers).
• Internal source documents. Internal source documents prepares employee of your company for internal needs (for example, to move goods between structural entity of a company).
  Need to take into account that with internal document (without additional documents) you have no rights to certify (prove) fact that company purchased goods or received services from another company. For example, if your company purchased a computer, but you have no payment documents, then you have no rights to prepare accounting note or other internal document, writing that company purchased a computer. An accountant has no rights to record transaction based on such internal document.

If regarding to some transaction or even you have both external and internal documents, then priority (higher force) is for external document (basis for accounting record is external document).

Most used accounting documents are following:

• An invoice (sales invoice) for services. Companies usually prepares invoices for provided services.
• An invoice for sales of goods. If your company sells goods, you need to prepare a corresponding invoice.
• A check (cheque) of a cash register. Printed by an electronic cash register. Certifies transaction (purchase) for which you paid in cash or by bank card.
• A receipt. You have rights to use (issue) a receipt only in cases, stated in the legislation. And before start to use you must register receipts in the State revenue service. Receipts confirms a transaction, which is settled in cash (buyer or service receiver paid in cash).
  Also exists so called "a receipt for a cash register". You do not need to register such receipt the State revenue service. And the receipt should use to add to a check of an electronic cash register in cases when the check does not contain all necessary details (for example, information about a buyer or price for one unit of goods, or quantity).
• A ticket. As well as receipts, you can use tickets only in cases, stated in legislation. And you must register tickets with the State revenue service.
• An agreement (a contract). To use and agreement as a source document, it is necessary that an agreement confirms that an economic transaction has occurred (change in values) and an agreement contains all necessary details.
  For example, if your company concluded loan agreement, but money movement (transfer) did not occur, then also transaction did not occur. So such agreement is not a source document.
  If in loan agreement parties write that borrower received loan at the moment of signing the agreement, then such agreement in general confirms that economic transaction occurred and an accountant has rights to use it as a source document.
• An accountant can use salaries calculation list (payroll list) as a source document to record company's obligations to pay salaries and taxes.
• Bank document (for example, payment order, bank statement). Can use as a source document to record non-cash money payments.
• An accounting note. Can use as a source document, for example, to correct some erroneous record.
• A credit note. Companies usually prepares credit notes, if transaction parties agreed to decrease price of goods / services (for example, discount or good defects, or non-qualitative service etc.).

Correction of source documents.

If a document is in paper form, you can correct the document by writing the correction on the document itself. In such case corrections must indicate (confirm) with special inscription ("Corrections approved)". Also must write who (name, surname), when (date) and why (reason, basis) corrected the document. And a person who corrected a document must sign it.

An accounting document one can correct using an accounting note (preparing new document, which you can add to the document, you need to correct). In such accounting note must write:

• Information about a document which you correct (document name, number, date).
• Date, when you correct a document (date of the accounting note).
• Reason (basis) of correction.
• Information about person who allowed to make the correction.

On a document, you need to correct, must write that for the document an accounting note is prepared and must write date of the accounting note.

Legislation, related wit source documents.

• Law on legal force of documents.
• The regulation of the Cabinet of ministers Procedure how to create and draw up a document.
• The law On accounting.
• The regulation of the Cabinet of ministers Regulation regarding processing (keeping) and organization of accounting.
• Electronic Documents Law.