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Mastering Excel Bookkeeping: A Comprehensive Guide for Small Business Owners

Posted on 26/12/2023

Bookkeeping with Excel includes the use of Microsoft Excel to record the financial transactions of a business. These transactions may consist of sales, purchases, expenses, and payments, among others. Numerous businesses use Microsoft Excel for bookkeeping due to its adaptability.

Acquiring proficiency in bookkeeping using Excel and delving into its functionalities can facilitate comprehension of the financial statements of a business, the production of accurate financial reports, and error prevention.

What is Excel bookkeeping?

Bookkeeping in Excel entails recording financial transactions and information for a small business using Microsoft Excel. Excel is a comprehensive accounting system that facilitates the recording of various types of transactions involving business bank accounts. It is possible to maintain records of inventory, personnel, suppliers, and more.

Excel, while not commonly associated with accounting software, can prove to be a valuable tool for recordkeeping in the context of small businesses. By developing Excel bookkeeping templates, one can streamline routine accounting activities, reduce error occurrences, and gain time savings.

Excel accounting requires that each set of financial data be entered into a unique template. One can generate an Excel spreadsheet to manage various financial matters, such as accounts payable, accounts receivable, employee salaries, revenue and expense transactions, and more.

Excel Single-Entry Bookkeeping:

A single-entry bookkeeping system is an accounting framework used to record and manage the financial transactions of an organization. Every transaction is documented in a single entry, with the majority of them serving to monitor the inflow and outflow of funds.

Transactions are recorded in a “cash book,” which is a journal consisting of columns containing headings such as the date and description, under the single-entry bookkeeping system.

In essence, single-entry bookkeeping is characterized by its focus on documenting a single side of transactions, in contrast to double-entry accounting which documents both debit and credit.

Excel runs single-entry bookkeeping flawlessly, which is an ideal system for small enterprises. However, larger organizations should not consider it. A double-entry bookkeeping system is required in such circumstances to monitor cash flow and reduce the likelihood of fraud and errors.

It might be prudent to contemplate the implementation of an online bookkeeping service or one of the accounting software solutions if you believe that your organization requires a double-entry accounting system.

Excel Guide to Establishing a Bookkeeping System:

Creating a bookkeeping system in Excel is as follows:

Step 1. Prepare a template for an Excel bookkeeping sheet

You can create your own Excel accounting template if you have prior experience with the program and can navigate its challenges. Users who are unfamiliar with Excel or have not previously utilized it have the option to download Excel accounting templates from the internet.

You can utilize templates as a foundation for more complex account-related endeavours, such as generating reports, forms, financial statements, and receipts after you have downloaded or generated them.

Irrespective of its source, the template ought to comprise three essential sheets: a transactions sheet, a chart of accounts sheet, and an income statement sheet.

A document known as the “chart of accounts” details the accounts that comprise the books of account. Each account in the document corresponds to a specific category, and each transaction must be categorized into one of those accounts.

A statement of income that details your earnings and expenses and presents your net income. Without this sheet, you would be unable to discern the financial condition of your company.

A transaction sheet is a document that details each business-related transaction. In this field, enter information such as the date, quantity, description, account number, and more. It is possible to consolidate transactions into a single document or to separate them into income and expense sheets.

Step 2. Customize your chart of accounts.

Subsequently, tailor your chart of accounts to precisely reflect your organization. It is advisable to establish points of reference that serve as reminders for which transactions ought to be categorized.

Before anything else, you must compile an inventory of all the expenses and revenues that your business incurs. Then, for each, an account should be created, recorded in the chart of accounts, and utilized as a point of reference during the process of categorizing transactions.

Consider that your organization’s chart of accounts will need to be customized. However, it is advisable to classify transactions into one of three distinct categories: cost of goods sold (COGS), expense, or income.

Step 3. Customize your income statement sheet.

The information on your income statement is derived from your chart of accounts. To ensure the utmost precision, it is necessary to modify the income statement page to correspond with the chart of accounts. It is necessary to classify each account as either income, expense, or COGS.

To produce monthly income statements, a total of 12 pages must be compiled, with one sheet designated for each month. Label each item and include the appropriate date range to prevent any potential confusion.

One advantage of utilizing preset templates is that they include formulas that facilitate calculations and data entry automatically. The data for these formulas is extracted from additional sheets.

Creating Excel templates from the beginning will require you to manually enter the formulas and numbers, thereby increasing the potential for errors.

Step 4. Create a sheet for invoices.

While this phase is not mandatory for rudimentary bookkeeping in Excel, it may enhance the overall organization process.

When inputting revenue generated from invoices, include the invoice number. By following this approach, one will have the capability to cross-reference the data, verify for inaccuracies, and prevent the duplication or omission of an invoice payment.

A distinct sheet for invoices greatly simplifies the process of keeping track of your money. You have the option of creating a blank document from scratch or downloading one.

Step 5. Create a sheet for cash flow projections.

An additional superfluous procedure in the context of Excel accounting. Moreover, Excel is not the most effective application for generating cash flow statements and distributing them to investors or other stakeholders.

Nevertheless, to facilitate monthly planning, a considerable number of small business proprietors opt to generate a cash flow projection sheet. Similar to the invoice document, this one can be downloaded as a template or created from scratch.

Step 6. Save the Excel Document.

It is time to save the Excel file once the ideal template for your company has been designed and the required pages have been added. Your computer or hard drive might contain it.

It is critical to ensure the security of this file, as it contains sensitive information about the bank accounts and accounting records of your company.

The Excel Model of a Bookkeeper.

Consider the scenario in which you need to generate a cash ledger for August 2023. The following columns should be included in your Excel table: date, specifics, income, expenses, and bank/cash balance.

The current balance should be the initial entry. As an illustration, this might amount to $5,000. You would record $700 in revenue from a sale that occurred on August 5 in the “income” column. You should now have a bank/cash balance of $5,700.

Suppose, furthermore, that you have a $1,500 rent payment due on the tenth. The specified sum ought to be entered into the “expenses” column, accompanied by the corresponding description and date. You should have a current bank/cash balance of $4,200.

Excel Bookkeeping Advantages:

  • Bookkeeping in Excel offers a multitude of benefits.
  • Essential bookkeeping functions in Excel do not necessitate any specialized expertise.
  • Utilizing the program is simple.
  • It is more cost-effective in comparison to accounting software.
  • A multitude of beneficial features of the program facilitate the effortless recording of transactions.
  • It facilitates the development of graphical presentations, including charts.
  • It facilitates the monitoring of incoming and outgoing transactions involving funds and expenses deposited into one’s bank account.
  • It permits the execution of rudimentary computations and the generation of financial statements.
  • It enables invoice tracking.

Cons of Excel Bookkeeping:

While Excel might appeal to certain business proprietors, it is not an ideal solution. Keep in mind the following few drawbacks.

  • The potential necessity for manual input of formulas increases the likelihood of error.
  • The security of Excel accounting is inferior to that of accounting software.
  • The procedure can be time-consuming.
  • The inability of Excel to integrate data from bank software prevents the generation of bank statements.
  • It is inadequate for more extensive enterprises.

Velan Automates Bookkeeping:

As an entrepreneur, you are aware that bookkeeping is difficult, irrespective of the scale of your organization. A seemingly minor error has the potential to lead to substantial complications in the future and incur expensive penalties and fees. In addition, a single error can undo months of laborious effort and necessitate countless hours of correction.

Velan can assist you if you prefer to avoid taking chances and instead take advantage of a multitude of practical approaches.

Talk to our experts to know more.

Our Bookkeeping Experts are here to help.

Topics: Bookkeeping Services




About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

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