How to Record Accounting Transactions for Your Business

Published Monday 22 December 2025

Table of contents

• What is recording in accounting?
• Why record-keeping matters
• Types of accounting transactions
• Recording in cash accounting vs accrual accounting
• How to record transactions in accounting
• Examples of common business transactions
• How long do you keep accounting records?
• Using accountants and bookkeepers
• Keep your business finances simple and accurate
• FAQs on recording accounting transactions

Key takeaways

• Establish dedicated business banking to separate personal and business expenses, which simplifies transaction recording by providing complete visibility of all business activity and enabling automated integration with accounting software.

• Record transactions immediately when they occur using either cash accounting (when money changes hands) or accrual accounting (when invoices are sent or received), and leverage automation tools like OCR apps for receipt scanning to reduce manual data entry errors.

• Categorise all transactions into your chart of accounts using the four essential types (income, expenses, liabilities, and assets) and involve a professional accountant or bookkeeper for complex transactions like depreciation, loans, and capital assets to ensure compliance.

• Reconcile your accounting records with bank statements regularly to identify discrepancies such as unrecorded cash transactions, bank fees, or timing differences, and maintain all business records for at least 7 years to meet legal requirements.

What is recording in accounting?

Recording in accounting is the process of entering your business’s financial transactions into your accounting system. This includes tracking:

• Sales revenue: Money coming into your business
• Business expenses: Money going out for operations
• Loans and investments: Capital transactions that affect your business

Why record-keeping matters

Recording transactions provides essential business insights:

• Profitability tracking: See if you’re making or losing money
• Debt management: Know who owes you and who you owe
• Cash flow planning: Determine if you can meet upcoming payments
• Business valuation: Understand what your business is worth

These records help you stay compliant with tax rules. In New Zealand, for example, you must register for goods and services tax (GST) if your projected annual turnover is NZ$60,000 or more.

Misrecorded transactions create serious risks:

• Inaccurate tax returns that trigger penalties
• Audit complications that cost time and money

Types of accounting transactions

Not all transactions are the same. Understanding the different types can help you categorise them correctly. Most transactions fall into a few simple groups:

• External transactions: These happen between your business and someone else, like a customer, supplier, or lender. A sale or a purchase is a perfect example.
• Internal transactions: These are financial events that happen within your business, like moving inventory from one department to another or recording the depreciation of a company vehicle.
• Cash transactions: This is when money is exchanged immediately. For example, a customer pays for a coffee with cash or a debit card.
• Credit transactions: This is when payment happens later. For example, you send a customer an invoice with 30-day payment terms, or you buy supplies and agree to pay the bill next month.

Recording in cash accounting vs accrual accounting

Transaction timing depends on your accounting method:

• Cash accounting: Record transactions only when money actually changes hands
• Accrual accounting: Record transactions when invoices are sent or received, regardless of payment timing

How to record transactions in accounting

To record transactions in accounting, follow this process below.

1. Capture transactions

Capture all transactions related to your business. Dedicated business banking simplifies transaction recording by separating personal and business expenses.

Key benefits of dedicated business banking:

• Complete transaction visibility: Your bank statement shows all business activity
• Simplified data entry: Copy transactions directly from bank records
• Automated integration:Link accounting software to your bank for automatic data flow

Recording invoices and bills at time of issue

The timing of accrual accounting requires immediate invoice recording. This can be done manually or automated.

• Manual approach: Enter invoices immediately when sent or received
• Automated approach: Use accounting software for invoicing and bill processing that records invoice details automatically

Benefits to automating invoicing and billing include:

• Accurate amounts: No transcription errors
• Complete dates: Proper timing documentation
• Tax calculations: Automatic tax handling
• Contact management: Customer and vendor details saved

Getting info from paper receipts

Receipt management is important for cash and personal card expenses.

Step 1: Photograph receipts immediately with your phone

Step 2: Choose your data entry method:

• Manual entry: Type receipt information into accounting records
• Optical character recognition (OCR) automation: Use optical character recognition apps that scan and enter data automatically

Pulling records from online shops or POS systems

You may be able to get detailed sales data from point-of-sale (POS) or ecommerce systems. For example, some software can help link transaction fees or courier costs to specific transactions which can be handy for working out the true cost of sales. You can also hook software like that into an online accounting package to pull that information together.

Entering expenses from other bank accounts

If employees use a personal card for a business expense, you can reimburse them from your business account and capture the transaction that way. Don’t forget to secure a copy of the receipt.

If employees claim expenses a lot in your business, an expense app on their phone can simultaneously capture the receipt, send the reimbursement claim, and automate the accounting entry.

2. Categorise your transactions

Transaction categorisation sorts your business activities into meaningful groups for analysis.

Income categories:

• Sales revenue: Money from customers
• Investment income: Interest from bank accounts

Expense categories:

• Cost of goods sold: Direct product costs (COGS)
• Operating expenses: Utilities, advertising, consulting

Your chart of accounts classifies all business transactions into four essential types:

• Income: Revenue that increases business value
• Expenses: Costs that reduce business value
• Liabilities: Debts that must be repaid
• Assets: Items that add value to your business

Accounting software often comes with a default chart of accounts that you can use, or you can create your own. Involve an accountant or bookkeeper when you set up your chart of accounts, because your choices affect how well you can analyse your business’s income and spending.

3. Get help with things like depreciation and loans

Transaction complexity varies by type:

• Straightforward transactions: Income and expenses from your bank account
• Complex transactions: Capital assets, depreciation, and loans require professional guidance

You record assets like vehicles, equipment and commercial buildings as fixed assets. Each year you depreciate these assets to reflect their loss in value, and you can claim that depreciation as a tax deduction.

But there’s a detailed rulebook for how depreciation is done, so it’s worth getting a professional to help keep you compliant. For instance, certain vehicles may be exempt from fringe benefit tax (FBT) if they meet specific conditions, so it helps to get expert advice.

You need to split loan repayments into a principal component and an interest component, and record each part in a different account. Record owners’ contributions and withdrawals carefully.

If you don’t have one already, you can find accountants, bookkeepers and tax professionals to help in Xero’s advisor directory.

4. Check your numbers

Reconciliation ensures your accounting records match your bank statements exactly.

Here are some of the most common discrepancies:

• Cash transactions: Payments not reflected in bank records
• Multiple accounts: Transactions from different bank accounts
• Timing differences: Money hasn’t changed hands yet
• Bank fees: Charges not yet recorded in accounting system

Accounting software streamlines this by automatically copying the numbers from your bank account and reducing the risk of transcription errors. It then prompts you to reconcile transactions, showing matches between bank transactions and accounting entries so you can confirm everything’s present and correct.

5. Create financial statements

Financial statements are the ultimate goal of transaction recording. Accurate data enables three essential reports:

• Profit and loss statements: Show if you’re making or losing money
• Balance sheets: Display business net worth (assets minus liabilities)
• Cash flow statements: Track how cash was generated and spent

Examples of common business transactions

Seeing how transactions are recorded can make the process clearer. Every transaction affects at least two accounts, which is the foundation of double-entry bookkeeping. Here are a few simple examples:

• You buy $500 of stock with cash: Your Inventory account increases by $500 because you have more stock. Your Cash account decreases by $500 because you spent the money.
• You sell a service for $1,000 on credit: Your Accounts Receivable account (money owed to you) increases by $1,000. Your Sales Revenue account also increases by $1,000. When the customer pays, your Cash account will increase and your Accounts Receivable will decrease.
• You pay a $200 electricity bill: Your Utilities Expense account increases by $200. Your Cash account decreases by $200.

How long do you keep accounting records?

Make sure to keep your accounting records in case you get audited. In New Zealand, for example, Inland Revenue requires that you retain all business records for a period of at least 7 years after the end of the income year to which they relate.

You also need to keep the underlying documents, such as bank statements, receipts and invoices. In New Zealand, these records must be kept in English or Māori unless you have prior written authority from Inland Revenue to use another language.

Using accountants and bookkeepers

Learning how to record business transactions will help you stay on top of your business’s finances. Even if you understand the basics, it’s still worth asking a bookkeeper or accountant to check your work.

Professional bookkeepers and accountants do this work every day. They’ll quickly spot and fix mistakes. If you want professional support, you can find an accountant or bookkeeper in the Xero advisor directory.

Keep your business finances simple and accurate

Recording your transactions is the first step to understanding your business’s financial health. You can manage it in a way that still gives you time for the work you enjoy most. By following a clear process and using the right tools, you can keep your books organised and gain valuable insights into your performance.

Ready to run your business, not your books? With smart automation and a clear view of your finances, Xero makes it easy to stay on top of your transactions. Try Xero for free and see how simple your accounting can be.

FAQs on recording accounting transactions

Here are answers to some common questions about recording accounting transactions.

What are the 5 main accounting records?

The five primary components of accounting records are:

• Transactions: The source documents like receipts and invoices
• Journals: Where transactions are first recorded
• The general ledger: A summary of all journal entries by account
• A trial balance: A check to ensure debits equal credits
• Financial statements: Such as the profit and loss statement and balance sheet

What is a journal entry?

A journal entry is the first step in recording a transaction. It’s a log that shows which accounts were affected and by how much. Modern accounting software automates this process, so you don’t need to create them manually. You just categorise your bank transactions, and the software does the rest.

Do I need to record every single transaction?

Yes, you should record every business transaction, no matter how small. Consistent and complete records are essential for accurate financial reporting, tax compliance, and understanding your cash flow. Using an app to capture receipts on the go can make this much easier.