Recording in accounting: process, steps and examples

Published Monday 20 April 2026

Table of contents

• What is recording in accounting?
• Why record-keeping matters
• Types of business transactions you need to record
• Recording in cash accounting vs accrual accounting
• How to record transactions in accounting
• Basic rules for recording transactions
• Simple journal entry examples
• How software simplifies recording
• How long do you keep accounting records?
• FAQs on recording in accounting

Key takeaways

• Separate your business and personal finances by opening a dedicated business bank account, then link it to accounting software so transactions are captured automatically and your bank statement becomes a reliable record.
• Categorise every transaction using a chart of accounts so your income, expenses, assets, and liabilities are organised correctly, making financial reporting accurate and tax time straightforward.
• Record complex items like fixed asset depreciation, loan repayments, and owner contributions carefully, splitting loan payments into principal and interest, and seek professional advice to avoid costly errors.
• Keep all business records, including invoices, receipts, bank statements, and tax returns, for at least five years (or seven years if your business is a company), storing them securely as digital copies that are clear and complete.

What is recording in accounting?

Recording in accounting is the process of documenting your business's financial transactions in your accounting system. It creates a complete record of money flowing in and out, helping you track performance, meet tax obligations, and fulfil a director's duty of care regarding proper financial reporting.

You'll record transactions like:

• Sales and revenue: money coming in from customers
• Business expenses: money going out for operations
• Loans and investments: capital movements that affect your business

Why record-keeping matters

Keeping good records gives you a clear view of your finances and helps you compare results year on year. You'll understand:

• Profitability: whether you're making money or losing it
• Cash flow: who owes you money and what you owe others
• Financial health: whether you can meet upcoming obligations over the next 12 months
• Business value: what your company is actually worth

Keeping accurate records helps you file correct tax returns and avoid issues with audits.

Types of business transactions you need to record

Common transactions you need to record include:

• Revenue: sales made to customers
• Expenses: purchases of stock, supplies, rent, utilities, or software subscriptions
• Payroll: wages and salaries paid to employees
• Financing: loan repayments and cash invested by owners

Recording in cash accounting vs accrual accounting

Transaction timing depends on your accounting method.

Cash accounting records transactions only when money changes hands:

• record invoices only when you receive payment
• record bills only when you pay them

Accrual accounting records transactions when invoices are sent or received:

• record sales when you invoice customers, even if unpaid
• record expenses when bills arrive, even before you pay them

How to record transactions in accounting

Follow these steps to capture and document your business transactions systematically.

1. Capture transactions

Separate business banking simplifies how you capture transactions:

• open a dedicated business bank account to avoid mixing personal and business expenses
• use this account for all business transactions so your bank statement becomes your transaction record
• link your bank account to accounting software so transactions flow through automatically

Recording invoices and bills at time of issue

If you use accrual accounting, record purchase invoices as soon as they come in and sales invoices as soon as they go out.

These transactions won't appear in your bank account until they're paid. You can enter them manually or use your accounting software for invoicing and bill processing to capture them automatically.

Amounts, dates, taxes, and contact details are recorded automatically when you issue invoices or receive bills.

Getting info from paper receipts

If you pay an expense with cash or a personal card, photograph the receipt with your phone.

You can enter the details into your accounting records later, or use an integrated optical character recognition (OCR) app like Hubdoc to scan the image and enter transaction data automatically.

Pulling records from online shops or POS systems

Point-of-sale (POS) and ecommerce systems can provide detailed sales data. Some software links transaction fees or courier costs to specific sales, helping you calculate the true cost of sales. Connect these systems to your accounting software to pull everything together.

Entering expenses from other bank accounts

If employees use a personal card for a business expense, reimburse them from your business account to capture the transaction. Keep a copy of the receipt for your records.

If employees frequently claim expenses, an expense app can capture receipts, process claims, and create accounting entries automatically.

2. Categorise your transactions

Categorising transactions organises your financial data into meaningful groups using your chart of accounts.

Common income categories:

• Sales revenue: money from customers
• Investment income: interest from business accounts
• Other income: miscellaneous earnings

Common expense categories:

• Cost of goods sold (COGS): direct costs to make your product
• Operating expenses: utilities, advertising, consulting
• Administrative costs: office supplies, software subscriptions

Properly categorising transactions classifies them as income, expenses, liabilities, or assets, which is essential for accurate financial reporting. Work with an accountant or bookkeeper when setting up your chart of accounts, as your choices affect how you analyse income and spending.

3. Record depreciation, loans, and capital assets

Income and expenses that flow through your bank account are easy to record. Recording capital assets, how they depreciate, and loans requires more care.

You depreciate fixed assets like vehicles, equipment, and commercial buildings each year to reflect their declining value. You can claim depreciation as a tax deduction, but the rules are complex.

Split loan repayments into two parts:

• principal: record this against the loan liability
• interest: record this as an expense

You also need to properly document when owners contribute to or withdraw from the business. Get professional help to ensure you record these transactions correctly.

Find an accountant, bookkeeper, or tax professional in the Xero advisor directory if you need help with complex transactions.

4. Check your numbers

Bank fees can cause differences between your records and bank statements. Check for these when you review.

Accounting software streamlines this process by copying numbers directly from your bank account, reducing errors. It prompts you to reconcile transactions by matching bank entries with accounting records. This helps you confirm everything is correct.

5. Create financial statements

Financial statements show how your business is performing. Australian Accounting Standards require you to present them at least annually, as entities normally prepare them for a one-year period.

With accurate transaction records, you can create:

• Profit and loss statements: show whether you're making money
• Balance sheets: show your business's net worth
• Cash flow statements: show how you generate and use cash

Basic rules for recording transactions

Double-entry bookkeeping is the core rule of accounting. Every transaction affects at least two accounts: for every debit, there's an equal credit. This keeps your books balanced.

For example, when you buy office supplies with cash, your office supplies expense account increases (a debit) and your cash account decreases (a credit).

You don't need to handle this manually. Accounting software like Xero manages debits and credits automatically. Your job is to keep the original documents, like receipts and invoices, to support each transaction.

Simple journal entry examples

A journal entry is the formal record of a transaction in your accounting system. Software creates them automatically, but understanding the basics helps you spot errors.

• Selling a product for $100 cash: cash account increases by $100, sales revenue account increases by $100
• Paying $500 monthly rent: rent expense account increases by $500, cash account decreases by $500

In both cases, debits equal credits and the books stay balanced. Xero creates these entries when you reconcile bank transactions or issue invoices.

How software simplifies recording

Modern accounting software automatically handles the technical details. Traditional bookkeeping required manual journal entries and ledger transfers. Today's software manages these behind the scenes.

You'll still see references to journal entries in accounting. These are simply the individual records of each transaction. The software creates them automatically when you enter details.

How long do you keep accounting records?

The Australian Taxation Office (ATO) requires you to keep most business records for five years, though ASIC requires companies to keep records for seven years.

Required documents include:

• invoices and receipts
• bank statements
• payroll records
• tax returns and supporting documents
• financial statements

Store records securely, either as paper copies or digital files. Cloud-based accounting software automatically backs up your data and makes it easy to retrieve records when you need them.

FAQs on recording in accounting

Here are answers to common questions about recording business transactions.

How often should I record transactions?

Record transactions as they happen or at least weekly. Regular recording keeps your records current and makes tax time easier. Daily recording is ideal if you have high transaction volumes.

Can I use spreadsheets instead of accounting software?

You can use spreadsheets for simple record-keeping, but accounting software reduces errors and saves time. It automatically applies double-entry bookkeeping rules, reconciles bank accounts, and creates financial statements.

What happens if I make a recording error?

Don't delete incorrect entries. Instead, create an adjusting entry to fix the mistake. This maintains a clear audit trail. Your accountant or bookkeeper can help you make corrections properly.

Do I need to keep paper receipts if I have digital copies?

The ATO accepts digital copies if they're clear and complete. Photograph or scan receipts immediately after receiving them, and store them securely. Keep digital backups in case files are lost.

How do I record personal money I put into my business?

Record owner contributions as capital or equity, not as income. This keeps your financial statements accurate and shows the true source of your business funds. Your accountant can help you categorise these correctly.