Using Excel for Small Business Bookkeeping: What Works (and What Doesn’t)

Do you use Excel for your small business’s bookkeeping? If so, there are a few things you’ll want to keep in mind for a smooth, accurate process.

Excel is a handy tool for bookkeeping. Many small business owners start out with it because it’s a simple, low-cost solution. However, it’s important to understand Excel’s limitations when it comes to bookkeeping. In this post, we’ll explore those limitations and share tips on how to make the most of your bookkeeping spreadsheets.

If you’re considering whether Excel is the right fit for you, you might enjoy: Do I Really Need Accounting Software? Excel vs Accounting Software for Small Businesses

When Excel works well for bookkeeping

Excel isn’t the right solution for everyone, but it works when you have:

• A low number of monthly transactions

• Simple income and expenses with limited categories

• Low complexity — meaning no inventory (unless easily trackable), payroll (except perhaps for yourself), or sales tax (unless easily calculated due to the simplicity of the business)

This is because bookkeeping done in Excel requires manual entry for every business transaction. When transactions are too voluminous or complicated, it creates a larger time commitment and more room for errors.

What you need to track in a bookkeeping spreadsheet

Let’s think in columns and rows. The essential columns you need to set up, typically from left to right, include:

• Date of transaction

• Vendor 

• Description (and/or any other relevant notes) 

• Cash amount 

• Category (revenue, expenses broken down by type, transfers) 

As an added check, it’s helpful to include a cumulative cash or credit balance column so you can easily reconcile your spreadsheet to your bank or credit card statements at any point in time. This will considerably reduce the time spent finding where any errors might have occurred. 

Each category should have a total so you can track cumulative income and expenses by category. This could be done in the cash amount column, but a column dedicated to tracking the cumulative cash balance after each transaction is more useful for the purpose of reconciliation.

Each row will contain one transaction, for clarity and ease of reference.

Best practices for accurate bookkeeping in Excel

We’ve covered the essentials, but when you’re bookkeeping in Excel, there are a few best practices that can help to ensure your data is accurate and relevant.

Double-entry bookkeeping 

This might sound intimidating, but if you can adopt simple double-entry bookkeeping in Excel, it will go a long way toward avoiding errors. 

How it works: For every positive cash transaction, there should be an equal negative transaction in the same row.

In the example of a $100 sale, you’ll see a positive $100 in the cash column, and then you’ll enter a negative $(100) in the revenue column. The positive cash in is a debit, and the revenue earned is a credit.

You can add an automatic check for errors by using a dedicated column at the far right end of your spreadsheet to sum each row. Skip the cumulative cash balance column if you use one. Every row should sum to zero, which means your debits and credits are in balance.

Spreadsheet simplicity 

Whichever approach you take to your bookkeeping spreadsheet, it’s best to keep it simple. 

One way to achieve simplicity is to use consistent categories, rather than frequently adding new ones. The best practice is to use only as many categories as needed to support your decision-making. This keeps your books accurate and meaningful. 

Avoid using lump-sums (e.g., multiple transactions in a single row), as this can make your entries difficult to track — and cause a lot of frustration if you encounter an error down the line.

Finally, it’s usually cleanest to stick to cash-based accounting in Excel (that is, you record revenues and expenses when the cash has moved). It’s difficult to track accruals in Excel, and they can cause issues with your manual reconciliations. 

Reconciliations should also be kept simple by checking your cumulative cash balance against your statements regularly.

If you need to use accrual accounting for reporting purposes, this is often done at year-end by using the cash-based bookkeeping spreadsheet as a starting point and then making accounting adjustments. This is typically handled by your tax preparer.

Consistent updates

A weekly bookkeeping workflow is typically ideal to keep the books accurate and up to date.

When bookkeeping in Excel, if you have a cumulative cash total then you can typically reconcile your cash balance to your books as you go, which streamlines the process. 

Be sure to frequently back up your Excel spreadsheet to prevent loss of data.

For more on bookkeeping frequency, you can read: How Often Should You Do Bookkeeping For Your Small Business?

What Excel doesn’t do well when it comes to bookkeeping

Here are some major sticking points to be aware of when it comes to using Excel for your books:

1. Anything that is difficult to track manually using Excel formulas. That includes inventory costing, complex entries such as payroll and tracking sales tax, and transactions for accrual-based accounting.

2. When your business scales, it’s difficult for Excel to keep up because it lacks automation — and the more voluminous the transactions, the more difficult it is to keep the books up to date, both from a timing and accuracy perspective.

3. Credit card transactions and bank transfers can be tricky to manage in Excel. One way to handle this is to use a separate tab for each bank and credit card account. Note that every time a credit card payment or bank transfer is made, you would need to ensure it’s picked up on both spreadsheets.

And of course, Excel doesn’t handle automation well. You can use formulas for automatic calculations, but data entry and categorization need to be done manually.

Excel is a great starting point

When your business is fairly simple and your transactions are minimal, Excel makes a fantastic starting point for small business owners to be hands-on in managing their own books, even with its limitations.

When your business starts to grow, you may need to be on the lookout for signs that it’s time to upgrade to an accounting software (such as QuickBooks, our preferred software) — especially when you know accurate, updated books and quick reports would lead to smoother decision-making. 

When managing your own books starts feeling overwhelming, partnering with a bookkeeper can be a great next step — and we would love to help. Coming in with your own Excel books? This is a great opportunity to schedule a free evaluation of your books so we can determine how best to support you. We look forward to connecting!