Why are source documents important in accounting?

• A. They are used to calculate depreciation expenses.
• B. They replace the need for financial statements.
• C. They determine the tax rate applicable to a business.
• D. They provide verifiable evidence for financial transactions.

Answer: (D)

Verified step by step guidance

1. Understand the role of source documents in accounting: Source documents are original records that provide evidence of financial transactions, such as invoices, receipts, checks, and contracts.
2. Recognize the importance of verifiability: Source documents serve as proof that a transaction occurred, ensuring the accuracy and reliability of financial records.
3. Learn how source documents support the accounting process: They are used to record transactions in the accounting system, forming the basis for journal entries and subsequent financial statements.
4. Understand compliance and auditing: Source documents are essential for compliance with legal and regulatory requirements and are often reviewed during audits to verify the authenticity of transactions.
5. Clarify misconceptions: Source documents do not calculate depreciation expenses, replace financial statements, or determine tax rates. Their primary purpose is to provide verifiable evidence for financial transactions.