How to record accounting transactions easily for your business

Published Friday 5 December 2025

Table of contents

• What is recording in accounting?
• Why record-keeping matters
• Recording in cash accounting vs accrual accounting
• How to record transactions in accounting
• 1. Capture transactions
• 2. Categorise your transactions
• 3. Get help with things like depreciation and loans
• 4. Check your numbers
• 5. Create financial statements
• How long do you keep accounting records?
• Using accountants and bookkeepers
• FAQs on recording accounting transactions

Key takeaways

• Establish a dedicated business bank account and connect it to accounting software to automatically capture all business transactions and eliminate manual data entry errors.

• Categorise every transaction into the correct accounts using your chart of accounts system, distinguishing between income, expenses, assets, and liabilities to maintain organised financial records.

• Perform regular bank reconciliation by comparing your accounting records against bank statements to identify discrepancies and ensure complete accuracy of your financial data.

• Seek professional help from accountants or bookkeepers for complex transactions like depreciation, loan payments, and tax compliance to avoid costly mistakes and maintain legal compliance.

What is recording in accounting?

Recording in accounting is the process of entering your business transactions into your accounting system. This tracks all money flowing in and out of your business through sales, expenses, loans, and investments.

Why record-keeping matters

Recording transactions helps you understand your business finances and stay compliant.

Key benefits include:

• Profit tracking: Know if you're making money
• Cash flow management: See who owes you money and what you owe
• Financial planning: Determine if you can meet upcoming obligations
• Business valuation: Understand what your business is worth
• Tax compliance: Keep accurate records for tax returns and audits so you meet your legal obligations
• Profit tracking: Know if you're making money
• Cash flow management: See who owes you money and what you owe
• Financial planning: Determine if you can meet upcoming obligations
• Business valuation: Understand what your business is worth
• Tax compliance: Keep accurate records for tax returns and audits so you meet your legal obligations and avoid penalties

Recording in cash accounting vs accrual accounting

Transaction timing depends on your accounting method:

• Accrual accounting: Record transactions when invoices are sent or received
• Cash accounting: Record transactions only when money actually changes hands

You can learn more in the guide Cash vs accrual accounting.

How to record transactions in accounting

Recording transactions involves five key steps:

1. Capture transactions: Collect all financial data from bank accounts, receipts, and invoices
2. Categorise transactions: Sort entries into income, expenses, assets, and liabilities
3. Handle complex items: Get professional help with depreciation, loans, and capital assets
4. Verify accuracy: Cross-check records against bank statements and source documents
5. Generate reports: Create financial statements from your recorded data

1. Capture transactions

Start with a dedicated business bank account to separate personal and business expenses. This ensures your bank statement captures all business transactions.

Two capture methods:

• Manual entry: Copy transactions from bank statements to accounting records
• Automated sync:Link accounting software to your bank for automatic data flow

Recording invoices and bills at time of issue

For accrual accounting, record invoices immediately:

• Sales invoices: Record when sent to customers
• Purchase invoices: Record when received from suppliers

Recording options:

• Manual entry: Input invoice details directly into accounting software
• Automated capture: Use integrated invoicing and bill processing systems to record amounts, dates, taxes, and contact details automatically

Getting info from paper receipts

For cash or personal card expenses, photograph receipts immediately with your phone.

Recording methods:

• Manual entry: Type receipt information into your accounting software later
• Optical character recognition (OCR) scanning: Use OCR apps to automatically extract and enter transaction data

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 link transaction fees or courier costs to specific transactions so you can see the true cost of sales. Again, you can 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. Make sure you keep 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 organises your financial data using a chart of accounts system.

Common categories include:

• Income: Sales revenue, investment income, other earnings
• Expenses:Cost of goods sold, utilities, advertising, consulting
• Assets: Equipment, inventory, cash, accounts receivable
• Liabilities: Loans, accounts payable, accrued expenses

Setup options:

• Default templates: Use pre-built categories in accounting software
• Custom categories: Create your own based on business needs
• Professional setup: Work with an accountant to optimise your chart of accounts

3. Get help with things like depreciation and loans

Simple transactions like bank deposits and payments are straightforward to record. Complex transactions require professional guidance.

Complex items needing expert help:

• Fixed assets: Vehicles, equipment, buildings requiring depreciation calculations
• Loan payments: Splitting between principal and interest components
• Owner transactions: Contributions, withdrawals, and equity changes
• Tax compliance: Ensuring depreciation follows current regulations

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

Bank reconciliation ensures your accounting records match your bank statements exactly.

Verification process:

• Compare totals: Check accounting records against bank statement amounts
• Identify discrepancies: Look for transactions that don't match
• Investigate differences: Common causes include cash payments, pending transactions, bank fees, or different account usage

Software benefits:

• Automatic matching: Links bank transactions to accounting entries
• Error reduction: Eliminates manual transcription mistakes
• Guided reconciliation: Prompts you to confirm or investigate unmatched items

5. Create financial statements

Financial statements are the end goal of recording transactions. Accurate transaction recording enables you to generate:

• Income statements: Show profitability and whether you're making money
• Balance sheets: Display business net worth by comparing assets to liabilities
• Cash flow statements: Track how cash was generated and spent over time

How long do you keep accounting records?

Record retention is legally required for tax compliance and potential audits.

Retention requirements:

• Time period: The required retention period depends on your business type and the rules that apply. In the UK, company law generally requires you to keep records for at least 3 years for private companies and 6 years for public limited companies, and separate tax rules may require you to keep them for longer.
• Supporting documents: Store bank statements, receipts, and invoices
• Purpose: Show clear evidence of your income and expenses if tax authorities ask to see your records

Using accountants and bookkeepers

Learning how to record business transactions will help you stay on top of your business's financials, but even if you understand the basics, it's still worth having a bookkeeper or accountant check your work.

Professional bookkeepers and accountants do this stuff for a living. They'll spot and fix mistakes in no time. Looking for the peace of mind of professional support? Then, check out our accountant and bookkeeper directory.

FAQs on recording accounting transactions

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

What are the rules for recording accounting transactions?

The three golden rules of accounting are to debit the receiver and credit the giver; debit what comes in and credit what goes out; and debit expenses and losses while crediting income and gains. However, with accounting software like Xero, these rules are applied automatically, so you can focus on running your business.

What are the main types of accounting records?

Key accounting records include source documents like invoices and receipts, journals where transactions are first entered, and the general ledger which summarises all transactions by account. Modern accounting software automates the journal and ledger, making record-keeping much simpler.

What information is in a transaction record?

A transaction record typically includes the date, the amount of money involved, the accounts affected, and a brief description of the transaction. For example, a sales record would show the date of sale, the total amount, the customer's name, and the product or service sold.