How To: Small Business Accounting In Excel

Accounting

Last updated by

Craig Fry

on

March 18, 2021

Learn how you can use Microsoft Excel for small business accounting. Use these Excel features, tips, and recommendations to streamline your bookkeeping.

Microsoft Excel has certainly stood the test of time in a world of cutting-edge tech as the essential software for small businesses. The software program is ideal for basic small business accounting.

Would you like to save money and time by using MS Excel for small business accounting? To help your small business or startup save the expense of hiring an accountant, we have created a comprehensive guide on how you can best utilize MS Excel for small business accounting purposes.

After reading this article, you will have comprehensive and in-depth knowledge of using MS Excel for small business accounting. If you run a small business with few financial transactions, you can use MS Excel as a good substitute for accounting software.

We have gathered this valuable information from some of the most trusted and reliable sources. The main goal is to provide you with authentic information so that you know and understand how to use Excel for small business bookkeeping and accounting.

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Table of contents

Using Excel as a General Ledger

You may know that many small business owners in the US use an Excel accounting template when starting operations. These businesses also maintain a journal of all their daily transactions, known as the General Journal.

Did you know that the General Journal entries record individual financial transactions in chronological order as either debits or credits? You can directly enter these entries into an MS Excel worksheet or import them from any other application into Excel.

Keep in mind that these accounting entries from their specific accounts create the General Ledger. And you can use the General Ledger to derive various reports, like the income statement. However, it is worth noting that every small business is different and will, therefore, have unique and different financial reporting needs.

Determining what accounting metrics you will need to include based on your small business is the first and most important step in setting up your bookkeeping process. You should know that a simple record-keeping setup will consist of columns for things like the date of transaction, transaction description, as well as a reference number, like an invoice or check number. Note that the next columns will mention each of the accounts that you will use during the year.  

You may know that the general ledger tends to use double-entry bookkeeping in order to keep track of all your small business transactions.

This is why it is essential to have a comprehensive understanding of this fundamental concept before you start to use MS Excel as a general ledger for your small business. Also, double-entry bookkeeping heavily relies on entering both credits and debits for a business transaction. This ensures that your books are balanced in the end.

Using MS Excel for Small Business Accounting

Budgeting and Statements

The best thing about MS Excel is that it comes with various templates. You can use these templates to create budgets, profit-and-loss statements, and cash-flow statements.

These are some of the fundamental documents used in business accounting. You can start your small business budget in Excel by simply exporting any income statement from the accounting software to MS Excel.

All you have to do is clear out all the numbers and then add suitable columns for each quarter or month of the financial period for which you are budgeting. After that, start entering the budgeted numbers, and you will have a budget. It is that simple!

And that is not all; you can easily download more complex statement and budgeting templates from the Microsoft Office website. You also have the option to buy specialized templates from any third-party vendor and then install these in your application, which is convenient.

Spreadsheets

One of the basic accounting tasks is performing line calculations. You will be happy to know that Excel spreadsheets are carefully designed in order to contain financial data in a convenient tabular format. This format is helpful as it supports both summation and in-line calculations. This is excellent as it eliminates the need for special accounting calculators and ticker tape, saving time in the process.

Did you know that the data in these spreadsheets is storable and reusable? This makes Excel more flexible and convenient than an accounting calculator, especially for doing simple calculations.

 In addition, you may also create graphs and charts from the spreadsheet data. This is helpful as it creates a media-rich user experience and offers different views and perspectives of the same data.

Invoices

You can quickly generate professional bills using Excel if your accounting software lacks an invoicing feature. You will be happy to know that Microsoft Excel invoice templates can automatically add invoice line items. This can reduce the risk of error.

Import External Data

Another reason Excel is ideal for small business accounting is that you can easily import external data from several different data sources into MS Excel. You may know that this can be especially useful for small business accounting.

This is because you can pull sales data, invoices, and banking data from multiple sources into a single central workbook in order to support and streamline your accounting activities.

 You can store the data in different databases as well as file formats before importing. This allows you to access data easily from several different areas of your small business doing additional data entry. This can save plenty of time.

Expense Reports

Whenever you reimburse your employees for mileage or any other business expense, it is best to ask for receipts as well as an expense report to tally all costs in a single document. The benefit of using Excel is that you can use hundreds of convenient expense report templates for this purpose.

Easy Integration

Did you know that Excel integrates well with many popular and leading accounting software applications on the market? For instance, you may use the wizards that come with your accounting software to easily map MS Excel spreadsheets to your business accounting data.

This will allow you to perform valuable push and pull data operations from MS Excel and your accounting package, which is excellent.

Bank Account Reconciliations

You probably know that performing bank reconciliations is one of the accounting basics. Bank reconciliation statements compare your business accounting records with your business bank statements.

Using Excel, you can easily put both side by side and then quickly scrutinize any financial discrepancies. You will like performing bank reconciliation with Excel due to its no-frills interface.

Accounts Payable and Accounts Receivable

It is no secret that many small businesses in the US track whom they owe and who owes them with an Excel spreadsheet. This is because it is very convenient. Many small businesses use the cash accounting method, recording expenses and revenue when money goes out or comes in.

Note that Excel is the best repository to maintain a list of your outstanding client invoices as well as your small business’s unpaid bills. This is because they don’t have any place in your business accounting records until there is an exchange of cash.

The Benefits of Using MS Excel

There are many benefits of using Excel for small business accounting. Some of them are as follows.

The Convenience of Organizing Financial Data

If you use Excel for business accounting, you can easily store your data in various spreadsheets in a more convenient and structured way or in any manner you prefer the financial reports.

 You can also present your data and relevant accounting results conveniently in the form of pie and bar charts. You will be happy to know that it is a simple feature that even amateur accountants can learn.

Streamlined Data Entry

We are not taking anything away from the convenience and ease of use that has now become standard in many small business accounting software programs. However, it is worth noting that you would be hard-pressed to find a software program more suitable for mass data entry than MS Excel.

With Excel and its formulae and macros, the spreadsheet can automatically calculate the data without any manual intervention. You can also use a handy feature, which is called “what-if”; it is ideal for forecasting budgets on the basis of user preferences.

For example, if you are an Excel power user, you will know that macros can easily churn out several hours of a human’s work in just a few minutes. As a business owner, you can create various macros in order to automate tasks, like filtering and formatting.

Visual Financial Analysis

You don’t have to use complicated accounting ratios to perform financial analysis. You can assess your business profitability by using MS Excel to create pie charts and graphs that show where your business’s funds are going.

Create Customizable Reports

One of the best things about Excel is that you can generate template-based reports, such as charts and tables that you can reuse for various tasks, including invoice management.  

You will be pleased to know that you can customize these reports as required to add more data points (like multiple state sales tax rates). The convenient thing is that you won’t have to create a new template every time.

Customizable and Ready-to-Use Bookkeeping Templates

This is another reason why Excel is so valuable. Whether you are applying calculation formulae or recording macros, you can use Excel to easily create bookkeeping templates that you can reuse every month, which is convenient.

This is a time-saving feature, and you may use it to incorporate your requirements for specific invoices, receipts, and other reports that you will need regularly. Did you know that Microsoft also provides you with a great option to use invoice templates from their extensive library of invoices and ledgers?

Small-business Accounting and Excel Usage Trends

You should understand and appreciate how the use of MS Excel for small-business bookkeeping and accounting has changed over the last couple of years. It is not surprising to know that MS Excel continues to be among the most popular accounting tools that small-business owners and finance managers use.

It is worth noting that smaller businesses in the US usually have and use considerably less financial data when than large enterprises. Note that Excel is ideal as it allows your small business to concentrate on basic accounting tasks, like forecasting and budget planning. The image shows a breakdown of various accounting tools that US businesses use.

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Key Excel Features for Small Business Accounting

Pivot Tables

You will find pivot tables in Excel’s “Insert” menu. They are an advanced table format, summarizing complicated datasets on the basis of a selected cell range. Note that from there, you can easily filter the selected financial data in a separate window.

For instance, bank statements usually list transactions in chronological order. However, this can be problematic as it doesn’t help you understand where your funds went that month.

This is where a PivotTable can come in handy. You can use it to categorize expenses and income on the adjacent bank statement.

Formulas

There is no doubt that Excel formulas considerably expedite business expense tracking and financial analysis. For example, if you are looking at a bank statement and would like to know how much your business spent on inventory purchase, you may use the “SUMIF” formula in Excel, instructing the program only to add expenses that you have marked as inventory purchases. You will not have to add up a list of the relevant expenses with a calculator.

What-if Analysis

This feature is located in Excel’s “Data” menu and helps you forecast results by quickly changing datasets in any formula. So, this feature lets you test new results by changing data without altering or removing the primary dataset.

Forecast Sheets

You will find this feature in the same menu as the “what-if analysis,” and this feature helps you forecast data trends on the basis of historical values. It is worth noting that this feature predicts financial trends in a graphical format rather than merely changing data values in the cells.

Using MS Excel for Small-business Accounting: Tips and Tricks

Here are some tips and things you should keep in mind if you are using or planning to use MS Excel for accounting at your small business.

Save Excel Files Securely

You should secure the financial information of your business by a strong password that just a privileged few know. It is best to password-protect your Excel files with sensitive and confidential information, like the Social Security numbers of your employees. You should also back up files that you are not storing on a cloud storage system.

Also, when it comes to managing your data, and there are some primary cells in your spreadsheet that don’t need to be changed or modified by mistake, you can also protect these cells.

Get Familiar with Templates

It is important to familiarize yourself with the various templates that Microsoft offers. You can search for bookkeeping and accounting templates online in order to determine whether what the company offers meets all your needs.

Generate and Save Template Files

You will benefit from saving your invoice as well as expense report templates in the form of template files. Keep in mind that when you open any template file, it will create a new document. The new document won’t overwrite your original template.

And after downloading and tweaking your expense report template, you can click on “Save As Template” to save the file to an accessible place. This is helpful as any time somebody clicks on that template file, you will be sure that they will not inadvertently ruin all the hard work you have done to create it.

Learn from Prefilled Datasets 

It is important to practice Excel as practice makes you perfect. This is true for Excel as it is for any accounting task, like cash flow management.

After finalizing a template, you should practice using the template with prefilled datasets. This will ensure that you fully understand how to use it before you input your data.

Final Thoughts

As you can see, Excel can perform a large number of tasks and is easily available. It is also very widely used in the world of business. Excel isn’t going anywhere, and small businesses in the US will continue to use this program as the main tool for diverse functions, such as business accounting.

If you are a small business owner, you can easily create your own accounting system in MS Excel.  However, keep in mind that if you would like to manage your small business accounting using Excel, it is best to start with a template. The template should contain a chart of accounts and a transactions sheet. It should also have an income statement sheet.

This comprehensive guide touched on some important small business accounting concepts, and MS Excel uses. It will provide you with sufficient information so that you can start your accounting procedures for your small business.

Craig Fry

Craig has spent 25 plus years in the world of accounting and business. His experience includes working as a CPA/Auditor for the international accounting firm of KPMG. He has worked as a controller and as a COO for small to medium sized companies. All of his experience has given him a vast knowledge of both book accounting and practical accounting experience which he has applied in all sizes of business.

Learn more about Craig Fry

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