Invoices and records
Source documents
Source documents are the original records, such as invoices, receipts, bank statements and contracts, that prove a transaction happened and support the figures in your accounts and BAS.
Source documents are the original pieces of evidence behind each entry in your accounting system. They show that a transaction really occurred, who it was with, when, and for how much. Typical examples include sales and purchase invoices, receipts, bank statements, payroll summaries, contracts, delivery dockets and credit notes. Your ledgers and BAS figures are only as reliable as the source documents underneath them.
For GST, source documents are what back up your claims. A tax invoice supports a GST credit on a purchase over $82.50 (GST inclusive). A sales invoice or cash register tape supports the GST you report on sales. Adjustment notes support changes after a sale. If the ATO asks how you arrived at a BAS label, these are the documents you will use to explain each number.
The most reliable approach is to link each transaction in your accounting software to its source document. Most cloud packages allow you to attach a photo or PDF to a bank transaction. This creates a trail from the bank feed, to the ledger entry, to the BAS figure, and back to the original document. It also saves time at year end when your accountant has questions.
Source documents differ from summaries. A profit and loss report or a spreadsheet of sales is useful for management but it is not the original evidence. Likewise, a bank statement shows the payment but not the purpose, so it often needs to be paired with an invoice or receipt. Where no document exists, such as for a small cash expense, a written note made at the time, recording the date, amount and purpose, may help.
Common problems include missing invoices, documents addressed to the wrong entity, and personal expenses mixed in with business ones. If an invoice is addressed to you personally rather than the business, a credit or deduction may be questioned. Where a supplier's invoice is wrong, ask for a corrected one rather than altering it yourself.
Source documents generally need to be retained for five years, and digital copies are acceptable if they are complete and legible. Treat them as part of your business's permanent working papers, kept in a logical structure by year and type. This is general information only, so confirm what applies to your situation with the ATO or a registered tax professional.
Worked example
Leo, a sole trader electrician, buys a $660 tool kit from a trade supplier. The source documents are the supplier's tax invoice showing GST of $60 (660 divided by 11) and the card statement line showing $660 paid. He attaches the invoice to the bank transaction in his software, coding it with GST. At BAS time he claims the $60 credit, and the evidence is already attached.
Practical tips
- Attach the invoice or receipt to each bank transaction as you code it, rather than collecting documents in bulk at year end.
- Make sure source documents are addressed to your business name or ABN, not to you personally.
- Never alter a supplier's document yourself; ask them to issue a corrected one.