Apr Fri 2021

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8 Source Documents You Should Maintain in Your Private Limited Company | Sri Lanka Accountant Service

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Efficient bookkeeping practises usually means that your Private Limited Company is safe from government penalties. 

Well-kept books also means that the company is both tax and investor ready.

But, how do you make sure that your books are accurately maintained? 

We’re glad you asked

The most basic and important step to ensuring this is to properly maintain your source documents.

Properly maintained source documents means well maintained books. 

However, there are a few things you need to know before you start taking a look at your books, like:

  1. What are source documents?
  1. What kind of source documents do you need to maintain?
  1. How do you maintain these documents? 

However, there isn’t a lot of readily available, accurate information about bookkeeping out there.

If you’re especially an entrepreneur that’s trying to understand bookkeeping in Sri Lanka for the first time, it can get a little frustrating.

But, don’t worry. We’ll help you out.

In this blog, we’re going to guide you on how to collect, manage, store and organize your source documents. 

What are source documents?

Source documents are basically all the records you maintain of your company’s financial transactions.
These transactions include any and all income and expenses of your business. 

Source documents include invoices, receipts, vouchers, bills, cheques, and etc. We’ll take a look at each one of these in detail later on in this blog. 

But why do you exactly need to maintain these records?

Let’s take a look!

Why do you need to maintain your source documents?

It’s actually pretty simple.

You see, you need to maintain good relationships with certain institutions like banks, the IRD (Inland Revenue Department), and investors when you run a business.

Why?

Well, these relationships are key to running a smooth ship. 

For example:

Banks come in handy when you need to take out loans, store your money, maintain current accounts, make payments, and etc.

The IRD will monitor your business and make sure that you’re legally compliant with all Sri Lankan laws and regulations.

None of these institutions will take you seriously or maintain beneficial relationships with you unless you have proof of your company’s financials.

This is where your source documents come in.

You need to have these records in order to prove the legitimacy of your company’s transactions.

So, whenever you need to apply for a bank loan, conduct your yearly audits, open bank accounts, bring in new investors to your business – you need to have these documents on hand. 

These documents come in a lot of different forms. We’ll get into that part soon.

What are the other advantages of maintaining your source documents?

Most business owners start off not knowing what source documents are.

However, once they do find out about them, they usually brush off the responsibility of maintaining them until they can’t avoid it.

This gets a lot of entrepreneurs in a lot of trouble. 

You need to prioritise maintaining accurate and complete records if you want to run a successful business. 

Not only will this help you manage your taxes, but it will also help to monitor your company’s health.

Let’s look at some of the other reasons why you should organize and maintain your company’s records: 

1. Helps build confidence with potential investors

Investors will always want to look at your books before they decide to invest their money in your business.

If you don’t have your books in order, there’s a good chance that you will miss out on a lot of funding opportunities.  

2. You gain access to the right information.

You need to have a bird’s eye view of your company’s finances if you’re going to understand it inside out. Good record keeping will help you find this information.

This will also in-turn help you make data driven decisions in your business. 

3. Significantly reduce risk

Your records can act as your alibi. It can protect you when you are questioned or challenged.

Even if you encounter legal issues, having good records can ensure both protection and support to you and your clients.

4. Help you achieve accountability

Having and maintaining good records will help you not just in the present but in the future as well.

There will always be certain types of documents and information that are required to be maintained legally.

Good record keeping will ensure that:

  1. You are aware of what information needs to be maintained long term at the start;
  2. The right information is maintained and accessible as long as it is needed. 

What type of source documents do you need to maintain?

There are a lot of different types of source documents your company will have to maintain as it grows.

However, let’s take a look at the most important types of source documents you need to maintain since we’re just starting off. 

1. Invoices 

Whenever you make a sale in your company, you need to issue an invoice. Only this will prove that a customer purchased your product.

Invoices need to include information like the details of the parties involved, terms of payment, date, quantity and price.

2. Receipts

Once you make a sale (and issue an invoice), the buyer will pay you. When they do, you need to issue a receipt to them.

This serves as evidence of the exchange of money initiated by the purchase. 

A receipt would generally include details like: information of the money received, parties, date, and the value. 

You need to send the original receipt to the buyer and keep a copy for your records.

3. Bills

These are the documents you receive when you make purchases. 

So if you buy anything for your company’s use such as a computer, furniture, and etc; the bill you receive must be kept and recorded.

4. Payment vouchers 

Whenever you make a purchase through the company’s money, you need to maintain proof of the transaction. 

Payment vouchers help you do this.

It will document certain aspects like:

  • How you made the payment;
  • To whom you made the payment; 
  • The person who authorized the payment and etc.

5. Bank statements 

Bank statements track every single one of your company’s bank transactions. 

6. Petty cash vouchers 

These don’t seem like the most important source documents at first glance. However, they still record the smaller transactions you make in the business.  

7. Payroll sheets

If you have employees in your company, they’re usually paid salaries. 

You need to maintain a record of all the salary payments you make to these employees. Payroll sheets or payroll slips are the documents that are used to record these transactions.

8. Cheques (Counterfoil of cheques) 

Cheques are basically written orders from the company. These authorise banks to transfer money to whoever is named in it.

So whenever your company issues a cheque, you need to save the counterfoil. 

When will you need your source documents?

The main reason you need to maintain source documents is because they provide evidence of all the financial transactions that took place in your company.

So, whenever you issue or receive any of the source documents we mentioned before – you need to save the original.

But, when will you use these records as proof in real life?
Let’s take a look.

1. Auditing 

Every Private Limited Company is legally required to run a few audits every year. 

Again, these are compulsory audits – you can’t really opt not to carry these out. 

A third party audit firm would usually carry these out on your company’s behalf. 

So, how would they exactly run an audit? 

Easy – they will comb through all of your company’s accounting journals and ledgers to confirm that your financials are in order.

When they’re running the audit, your company needs to be able to verify each and every transaction in your journals and ledgers. 

How are these transactions verified? You guessed it right! By referring to the source documents. 

When it comes to navigating your way through this audit process, you don’t want to be in a position where you have to scramble and organize your source documents at the very last moment. 

So, make sure your company develops a system where it routinely collects, stores and organizes its records.
Better yet, begin the process as soon as every transaction has been completed, or the moment when a source document has been issued. 

2. Bank reconciliation

A Bank reconciliation checks the differences between your company’s accounting records and the bank statement. 

When you find a difference between the two, your company’s finance team will start to make the necessary changes to its accounting records. 

Bank reconciliations have to be carried out at regular intervals to make sure that your cash records are correct. 

The most effective way to execute a bank reconciliation is for your company’s bookkeeper to refer to the internal source documents and use them to update the bank reconciliation statement.

This is why routinely maintaining source documents is so important. 

How-to: Collect, Manage, Store and Organize your source documents

Collecting and managing your source documents

There are a two main ways you can collect your company’s source documents:

1. You can physically collect and manage your source documents OR; 

2. You can digitally collect and manage your source documents.

In this blog, we’re going to be talking about how you can digitally collect and manage your records. 

Why are we only going to focus on digital collection and management?
That’s an easy one to answer.
In our experience, physically keeping a track of your records is usually never effective.
There are just too many pros to digital collection and management like:

1. Minimise risk of losing or damaging the documents 

2. Easy access from any device, which makes this methods all the more convenient

3. It doesn’t occupy any physical space

4. Readily available

Storing your source documents

The process of digitally storing your source documents is pretty easy and straightforward.
The simplest method of implementing this is to use your company’s cloud storage.
Depending on which online system your company uses, you’ll have access to different types of storage.

Here at Simplebooks, we use g-suite. So, naturally, we use Google Drive to store all of our source documents online.
If your company runs on Microsoft, you’d probably end up using One Drive.

In today’s day and age, a lot of vendors, suppliers and clients issue digital invoices, receipts, cheques, and etc. So, you can always upload and store a copy of these documents on your cloud.
However, if they’re more conservative – they could exclusively issue physical records.
In this case, all you have to do is scan and upload the documents to your drive.

Here’s a really simple process that you can follow:

  1. Collect all the digital invoices, receipts, vouchers, and etc of your company.  
  2. Scan and collect all of your physical source documents.
  3. Create separate folders on your cloud for different record types (these folders could also have sub-folders for monthly, or weekly, or other sorting timelines in your company. Find something that works well with your internal financial processes, and fine-tune it accordingly).
  4. Routinely upload your source documents to these folders. 
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Organizing your source documents

There are a few really easy steps you can take to ensure that your records are organized and kept up to date.
Here are two:
Step 01: Pre-number your documents

This will make it easier for you to keep track and to track down any missing documents.

Step 02: Reconcile the balances in accounts to the relevant source document

By doing this, you can check to see which documents haven’t been recorded; or if there are any transactions that have been recorded in the account but don’t have a supporting source document.

Let Simplebooks manage your source documents for you!

Tracking, collecting, managing, storing and organizing your company’s source documents is annoying. We get it.

We’ve witnessed a lot of entrepreneurs and companies waste a lot of time on this one task.

Time – that they could’ve spent on nurturing and growing their business.

So, let us help you tackle this problem early on.

Don’t waste your time on your source documents – we’ll take care of it for you.

Here at Simplebooks, we’ve helped hundreds of businesses save their time by doing this task for them.

We could help you too.

Have a team of experienced accountants and bookkeepers track, collect, manage, store and organize your records for you.

Talk to our team to get started, it’s that easy.

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