How to record accounting transactions: steps and PH examples

Published Tuesday 6 October 2026

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 accounting transactions in 6 steps
• Examples of recording transactions for PH small businesses
• Understanding double-entry bookkeeping
• Modern vs traditional recording methods
• How long to keep accounting records in the Philippines
• Using accountants and bookkeepers
• Simplify transaction recording with Xero
• FAQs on recording accounting transactions

Key takeaways

• You record accounting transactions in six steps. You start with the source document and finish by reviewing your financial reports.
• Since 27 April 2024, the invoice is the primary document for sales of goods and services. It replaced the official receipt under the Ease of Paying Taxes (EOPT) Act.
• If you’re registered for value-added tax (VAT), split out 12% VAT on every sale and purchase. Doing it as you record saves rework when you file.
• Keep your books of accounts and records for five years under the EOPT Act. Reconcile your bank and e-wallet accounts regularly so your records stay complete.

What is recording in accounting?

Recording in accounting means entering each financial transaction into your business records. That covers sales, expenses, loans and money you invest as the owner.

Each entry captures the date, amount, the other party and a short description. The basic rule is to record every transaction that affects your business and back it with a source document.

Why record-keeping matters

Accurate records help you make better decisions and meet your Bureau of Internal Revenue (BIR) obligations. They also form the basis of your tax returns.

Up-to-date transaction records show you where your business stands. With them, you can:

• see whether your business is making a profit
• track who owes you money and who you owe
• forecast whether you can cover upcoming bills
• understand what your business is worth

Correct entries also keep your tax filings accurate. That makes a BIR audit far simpler to handle.

Types of accounting transactions

An accounting transaction is any business activity with a direct financial impact on your business. Grouping them by type makes it easier to record accounting transactions correctly.

External vs internal transactions

External transactions happen between your business and an outside party, such as a customer or supplier. Internal transactions stay inside the business, like moving stock between branches or recording depreciation.

Cash vs credit transactions

Cash transactions are paid straight away in cash, by card, by bank transfer or through an e-wallet like GCash or Maya. Small purchases paid from a petty cash fund count as cash transactions too.

Credit transactions are paid later. Sending an invoice to a client or receiving a bill from a supplier are both credit transactions.

Common transaction examples

Most of your business activity falls into a handful of categories. Typical transactions for a small business include the following.

• Selling goods or services to customers
• Receiving payment from a customer
• Buying stock from suppliers
• Paying staff salaries
• Taking out or repaying a business loan

Recording in cash accounting vs accrual accounting

Your accounting method decides when you record a transaction. Cash accounting records it when money changes hands, while accrual accounting records it when you issue or receive an invoice.

Say you invoice a client ₱50,000 in March and they pay in April (illustrative figures). Accrual accounting puts the sale in March, and cash accounting puts it in April.

Choose a method that’s consistent with your BIR registration and books of accounts. Check with an accountant before you choose or change it. You can weigh up cash vs accrual accounting in more detail before you decide.

How to record accounting transactions in 6 steps

To record accounting transactions, you turn each source document into a categorised entry, then check it against your statements. Follow these six steps to keep your records accurate and ready for the BIR.

1. Collect your source documents

Every entry starts with a document that proves the transaction happened. Under Revenue Regulations (RR) 7-2024, the invoice replaced the official receipt as the primary document for sales of goods and services from 27 April 2024.

RR 7-2024 implements the EOPT Act (Republic Act 11976), in force since 22 January 2024. Gather these documents as each transaction happens:

• BIR-registered sales invoices you issue to customers
• Supplier invoices and bills you receive
• Receipts for cash and card purchases
• Bank statements and e-wallet transaction histories

A dedicated business bank account keeps personal and business spending apart, so your statement reflects most business activity. These tips help you capture each source with less typing.

• Create sales invoices in online invoicing software so amounts and VAT are recorded as you issue them
• Enter supplier bills as soon as they arrive, using bill management tools to track due dates
• Photograph paper receipts and let automatic data capture pull out the details with optical character recognition (OCR)
• Connect your point-of-sale (POS) system or online shop so fees and courier costs show your true cost of sales
• Collect receipts for staff expenses paid on personal cards before you reimburse them

2. Record each transaction

Record each transaction with its date, amount, counterparty and a short description. This record is a journal entry, and it’s the starting point for everything in your books.

Each journal entry has at least one debit and one credit of equal value. Accounting software creates these lines for you when you enter a sale or a bill.

3. Categorise it and split out VAT

Categorise each transaction by assigning it to an account in your chart of accounts. Your chart of accounts is the full list of categories, grouped as assets, liabilities, equity, income and expenses.

Common categories for a small business include the following.

• Sales revenue from customers
• Interest income on business accounts
• Cost of goods sold (COGS), the direct cost of the products you sell
• Operating expenses such as rent, utilities, advertising and professional fees
• Output VAT and input VAT, if you’re VAT-registered

If you’re VAT-registered, split each amount into its net value and 12% VAT. Output VAT on sales is what you owe the BIR, and input VAT on purchases is a credit you can offset against it.

Most accounting software includes a default chart of accounts you can adjust. An accountant can help you tailor it, since your categories shape how you read your reports.

4. Post it to your books of accounts

Posting moves each journal entry into the ledger accounts that make up your books of accounts. The BIR accepts manual, loose-leaf or computerised books, and you register them with the BIR.

In a manual system, you copy each entry from the journal into the general ledger by hand. Accounting software posts entries automatically the moment you save them.

5. Reconcile against bank and e-wallet statements

Compare your records against each bank and e-wallet statement to confirm they match. This check, known as bank reconciliation, catches missing or incorrect entries early.

Common reasons for a mismatch include:

• cash sales you haven’t recorded yet
• expenses paid from a different account
• InstaPay or PESONet transfers that are still pending
• bank and e-wallet fees you haven’t entered

When you find an error, fix it with a correcting entry so your audit trail stays intact. Software that imports bank transactions and suggests matches lets you confirm most entries in a few clicks.

6. Review and create financial statements

Review your reconciled entries, then run your reports. Your core financial statements are:

• a profit and loss statement, showing whether you made a profit
• a balance sheet, showing what your business owns and owes
• a cash flow statement, showing how cash moved in and out
• a statement of changes in equity, showing how owner’s capital changed

A monthly review helps you spot errors early and see trends while there’s still time to act.

Recording complex transactions

Some transactions need extra care because they affect more than one period or account. Ask your accountant to help you set up entries for these:

• fixed assets such as vehicles and equipment, which you record as assets and depreciate over time
• depreciation, which follows tax rules that affect your deductions
• loan repayments, which you split into principal (reducing the debt) and interest (an expense)
• owner contributions and withdrawals, which belong in separate equity accounts

Examples of recording transactions for PH small businesses

These examples show how recording transactions works for everyday Philippine sales and purchases. All peso amounts are illustrative, and the VAT examples assume a VAT-registered business.

Cash sale at a café

A café sells coffee and pastries for ₱1,120 in cash, including 12% VAT. The entry separates the sale from the output VAT you owe:

• Debit cash on hand ₱1,120
• Credit sales revenue ₱1,000
• Credit output VAT payable ₱120

Customer payment by GCash

A client pays a ₱5,600 invoice through GCash. You recorded the sale when you issued the invoice, so this entry clears the amount they owe:

• Debit GCash wallet ₱5,600
• Credit accounts receivable ₱5,600

Stock bought on credit from a supplier

A retailer buys ₱22,400 of stock from a VAT-registered supplier on 30-day terms. The invoice includes ₱2,400 input VAT, which you can offset against output VAT:

• Debit inventory ₱20,000
• Debit input VAT ₱2,400
• Credit accounts payable ₱22,400

Staff salary paid by bank transfer

You pay an employee a ₱18,000 salary through InstaPay. This simplified entry leaves out withholding tax and government contributions, which add extra lines in real payroll:

• Debit salaries expense ₱18,000
• Credit cash in bank ₱18,000

Owner capital contribution

You deposit ₱100,000 of personal savings into the business account to buy equipment. This is owner’s capital, so it goes to an equity account and stays out of your sales:

• Debit cash in bank ₱100,000
• Credit owner’s capital ₱100,000

Understanding double-entry bookkeeping

Double-entry bookkeeping records every transaction in at least two accounts, with total debits equal to total credits. Each example above follows this rule.

Think of it like a weighing scale at the palengke: both sides must balance before the sale is done. When your totals differ, you know an error has crept in. You can learn how debits and credits balance in more depth, although Xero creates both sides of each entry for you.

Modern vs traditional recording methods

Modern accounting software updates your journals and ledgers automatically, while traditional bookkeeping handles each step by hand.

Software makes it quicker to record accounting transactions. With bank and e-wallet feeds, you can categorise most entries in a few minutes each day or week. Spreadsheets suit very low volumes, but manual typing takes longer and invites errors.

With cloud accounting, you and your accountant work from the same live records wherever you are. Invoices, bills, bank feeds and reports all sit in one place.

How long to keep accounting records in the Philippines

Keep your books of accounts and supporting records for five years. Under the EOPT Act and RR 7-2024, the period starts the day after the filing deadline, or from the filing date if you filed late.

If a protest or tax refund claim is pending, keep the relevant records until the case is resolved, as Grant Thornton Philippines explains. Retain your accounting data along with documents such as:

• bank statements and e-wallet transaction histories
• sales invoices and supplier invoices
• receipts for purchases and expenses
• contracts and loan agreements

Using accountants and bookkeepers

An accountant or bookkeeper adds a second check on your records and keeps your filings on track. Consider professional support if you:

• want your records checked before filing deadlines
• have complex transactions like depreciation or loans
• need help registering your books of accounts with the BIR
• prefer to spend your time running the business

Professionals spot and fix errors quickly. Find a certified accountant or bookkeeper near you in the Xero Advisor Directory.

Simplify transaction recording with Xero

A clear six-step routine keeps your records accurate and your reports ready when you need them. Xero brings in bank feeds and captures receipts, so your small business bookkeeping takes less time.

JAX, Xero’s AI financial superagent, reconciles bank transactions automatically where there’s high confidence, and you keep the final say. Spend more time running your business. Get one month free and see how Xero fits your books.

FAQs on recording accounting transactions

Here are answers to common questions about recording accounting transactions in the Philippines.

How do you record transactions in accounting step by step?

Collect the source document, record the entry, categorise it with VAT split out, post it to your books, then reconcile and review. Working through these steps weekly keeps the job small and your books current.

What are the books of accounts required by the BIR?

Most businesses keep at least a general journal and a general ledger, registered with the BIR in manual, loose-leaf or computerised form. Your accountant can confirm which subsidiary books your registration also needs.

How long do you need to keep accounting records in the Philippines?

Keep them for five years after the filing deadline for the year of the last entry. Under RR 7-2024, manual and loose-leaf books are kept as hard copies, while computerised books are kept as electronic copies.

How do you record GCash or e-wallet payments in your books?

Set up each e-wallet as its own bank-type account, then record money in and out and reconcile it against the wallet’s transaction history. Record transfer and cash-out fees as a bank charges expense.

What is an example of recording a transaction?

Paying ₱25,000 monthly rent by bank transfer is a debit to rent expense and a credit to cash in bank (illustrative figures). If your landlord is VAT-registered, split out the input VAT as well.

Do I need to issue an invoice or an official receipt?

Issue an invoice for every sale of goods or services, because it’s been the primary sales document from 27 April 2024. Update your invoice templates and registration with your accountant so they meet current BIR requirements.