Lesson 53 - Beginner accounting course

53. How to Record Transactions Using Accounting Software

Recording transactions accurately in accounting software is essential for maintaining financial records, tracking business performance, and ensuring tax compliance. Most modern accounting software (e.g., QuickBooks, Xero, FreshBooks) simplifies the process by automating entries and categorizing transactions.

Step 1: Understanding the Types of Transactions

Before entering data into the software, businesses must identify the type of transaction:

• Sales Transactions: Revenue from selling goods or services.

• Expense Transactions: Payments for operating costs, like rent and utilities.

• Bank Transactions: Deposits, withdrawals, transfers, and bank fees.

• Payroll Transactions: Salaries, wages, and tax withholdings.

• Journal Entries: Adjustments, depreciation, accruals, and other manual entries.

Step 2: Recording Sales Transactions (Invoices & Receipts)

Sales transactions can be recorded in two ways:

1. For Cash Sales (immediate payment):

   • Navigate to the "Sales" or "Invoices" section.

   • Select "Create a New Sales Receipt."

   • Enter customer details, product/service, amount, and payment method.

   • Save and print/email the receipt.

2. For Credit Sales (Invoices) (payment due later):

   • Go to "Invoices" and select "Create New Invoice."

   • Add customer name, invoice date, due date, and payment terms (e.g., Net 30).

   • Include product/service details and applicable taxes.

   • Save, then send the invoice to the customer.

   • When payment is received, mark the invoice as "Paid."

Example of an invoice entry in QuickBooks:

Step 3: Recording Expense Transactions (Bills & Payments)

To record an expense or bill payment:

1. Go to the "Expenses" or "Bills" section.

2. Select "Create New Expense" or "Enter Bill."

3. Add details:

   • Vendor/supplier name

   • Date and amount

   • Expense category (e.g., Office Supplies, Rent, Utilities)

   • Payment method (Cash, Credit Card, Bank Transfer)

4. Save and attach a receipt for record-keeping.

Example of an expense entry:

If the expense is paid immediately, it’s recorded as an expense. If it’s due later, it is entered as a bill payable and paid later.

Step 4: Recording Bank Transactions (Deposits, Withdrawals, Transfers)

Most accounting software allows businesses to connect their bank accounts for automatic imports. If manual entry is needed:

1. Go to the "Banking" section and select "New Transaction."

2. Choose the transaction type:

   • Deposit (Customer payments, loan received)

   • Withdrawal (Supplier payments, loan repayment)

   • Transfer (Money moved between accounts)

3. Enter the date, amount, and bank account involved.

4. Categorize the transaction correctly (e.g., Revenue, Expense, Loan).

5. Save and reconcile with the bank statement.

Example of a bank transaction entry:

Step 5: Recording Payroll Transactions (Salaries, Taxes, Benefits)

For businesses with employees, payroll transactions include:

• Salaries/Wages: Payments to employees.

• Payroll Taxes: Employer and employee tax contributions.

• Deductions: Health insurance, retirement contributions.

If payroll is managed manually:

1. Go to "Payroll" or "Salaries" section.

2. Select "New Payroll Entry."

3. Enter employee details:

   • Gross Pay (before deductions)

   • Tax Withholdings (income tax, social security)

   • Net Pay (amount employee receives)

4. Save and mark as "Paid."

Example of a payroll entry:

Step 6: Recording Journal Entries (Adjustments & Corrections)

Some transactions require manual journal entries, such as:

• Depreciation of Assets

• Adjustments for Accruals & Deferrals

• Correcting Errors

To enter a journal entry:

1. Go to "Journal Entries" or "General Ledger."

2. Select "New Journal Entry."

3. Input the date, accounts affected, debit, and credit amounts.

4. Add a short description.

5. Save and post the entry.

Example of a journal entry for depreciation:

Step 7: Reviewing and Reconciling Transactions

To ensure accuracy, transactions should be reviewed regularly:

1. Check the General Ledger: Verify all transactions are posted correctly.

2. Run Financial Reports: Generate a Profit & Loss Statement, Balance Sheet, and Cash Flow Statement to check for inconsistencies.

3. Reconcile Bank Accounts: Match software transactions with bank statements to identify discrepancies.

Conclusion

Recording transactions in accounting software ensures that a business maintains accurate and organized financial records. Whether it’s sales, expenses, payroll, or bank transactions, using a structured process helps prevent errors, improves financial reporting, and supports better decision-making. Regular reconciliation and review ensure that all entries align with actual business activity.