Excel is a powerful tool that can be used for accounting and bookkeeping. However, many people don't know how to use excel for these purposes. This guide will teach you how to use excel for accounting and bookkeeping.
Excel has the capabilities you require, whether you’re a full-time small company owner or a worker with a side hustle. All you need is a quick orientation and a few practical formulas. Learn more about using Excel for Accounting and Bookkeeping
The following will be covered in this article:
- Formulas that are useful for cash basic accounting
- Accrual-basis accounting
- Double-entry bookkeeping
Now that you’re ready, take a deep breath, and let’s run the numbers and use Excel for Accounting and Bookkeeping
Excel 101 Accounting
Excel spreadsheets enable almost miraculous feats. Even a global championship is held for Microsoft Office software.We don’t do that.These are the most fundamental types of accounting, and Excel can be used to carry out any of them. Let’s go over the distinction between accrual and cash basis accounting and also debunk double-entry (or dual-entry) Accounting and Bookkeeping along the way.
Accounting on a cash basis
Checkbooks was once manually balanced by the owners. They would add their earnings and outgoings to their account. They would frequently review these lists to make sure they were always aware of their available funds. The monetary basis of accounting ends there.This approach is popular among small firms since it is so straightforward. Additional accounts payable (money you owe) and accounts receivable records can and should be kept (money owed to you). However, your basic accounting simply keeps track of money when it is transferred. At a minimum, your spreadsheet needs the following columns:
- Date
- Transaction Number
- Description
- Income
- Expense Totals
Double-entry Accounting and Accrual Accounting
Although accrual accounting is more complex than cash basis accounting, many firms prefer it because it provides a more complete and accurate picture of their business’s financial position.With accrual accounting, you must record all of your assets and liabilities in addition to your cash flow. The equation: is the basis of accrual accounting.Liabilities shareholder (or owner) equity = assets.Double-entry bookkeeping is useful in this situation. You may maintain this equation balanced by using double-entry accounting. You must adjust the other side of the equation whenever you change one side of it.You require more than one ledger when using accrual accounting. You must also maintain worksheets for each of the accounts listed on your balance sheet.Your Excel accounting worksheet should have a chart of accounts on the first page. Make a list of every account you have, indicating the type of account each is and how you increased it.I’ll come back to this last section of Excel, which is the most perplexing for small firms because it deals with how to raise your accounts.
Five different types of accounts exist and one should know this to use Excel for Accounting and Bookkeeping:
- Assets
- Costs
- Liabilities
- Equity
- Revenue
Liabilities, equity, and revenue belong on the right side of a balance sheet (or balance equation), whereas assets and expenses are on the left.What makes expenses a part of assets? Keep in mind that this is not money that is still owed to others or accounts payable. These are the items you purchase with money.Your obligation to pay your electric bill is a liability that is on the equation’s positive side. In exchange, you receive electricity, which balances the equation by moving to the left.So why are expenses not treated like assets? Because they are used up within an accounting period during regular business operations. At the end of the month, you don’t have any extra electricity that you keep as a future asset.Here’s something else that defies logic even more.
Debits and Credits
The first accrual accounting guideline using Excel for Accounting and Bookkeeping to keep in mind is this:
- Debits result in a gain in assets, whereas credits result in a decrease in expenses.
- Credits raise liabilities, equity, and revenue, while debits reduce those same items.
Yet why? Shouldn’t you receive a sizable cash payment credit in your cash account? No. Your account would be debited.
But Why?
Because financial institutions view business accounting through their own unique set of lenses, and their methods for calculating debits and credits may differ from yours.
Still, perplexed? In all honesty, I barely sort of understand it. You only need to be aware that it does; you don’t really need to grasp how it does it. Similar to that, I have no idea how the coding for Excel accounting works. The necessity for me to (fortunately).
Try to think of credits and debits as value-neutral accounting words rather than as good and negative. Additionally, you shouldn’t associate debits with drops and credits with rises. Put a place in front of the text rather than a fictitious /- symbol.
Left = Debits
Right = Credit
In order to increase values on the left side of the equation, debits are recorded on the left side of each individual account. Credits are entered on the right side of the accounts and are used to raise values there.
Cash Basis and Double-entry Accounting
The cash technique permits the use of double-entry accounting. If you manage accounts payable and receivable, for instance, you would record a customer payment as income and subtract the sum from your account receivable simultaneously. That amount would no longer be noted as money that would be collected in the future.
The crucial distinction is that when money exchanges hands, your balance sheet is the sole place it is recorded.
Practical Formulas
One benefit of utilizing Excel for small business accounting is that you can store your calculator in a drawer, where it has likely been since phones were first equipped with calculators.
There are a few formulas that you’ll probably use frequently. Here are a few things to keep in mind:
-
SUM
This method, which is maybe the most popular, enables you to swiftly add long strings of integers.
Do you need to add up every number in rows 1 through 50 in column A? Use the SUM function alone:
=SUM(A1:A50)
You can also just select AutoSum by clicking on the first empty cell at the end of a column (in this case, A51). The toolbars for Home and Formulas both have buttons.
-
SUMIF
Rosa’s Roses has enjoyed many years of devoted patronage from your company. You must know the precise amount you have spent there so far this year. No issue.
You can add up only the cells that satisfy specific requirements with SUMIF. You can see the revenue earned by a particular product or the percentage of your income that was brought in by sales under ₹20.
Simple syntax is
Range, Criteria, and [sum range] = SUMIF
Let’s assume that rows 2 to 152 are your accounts payable for the year. The transaction’s description is entered in column B, and all credits to that account are entered in column D. Your equation would look like this:
=SUMIF(Rosa’s, B2:B152, D2:D152)
If the word “Rosa’s” appeared in the matching B cell, this would sum the values in cells D2 to D152.
The term “Rosa’s” is surrounded by quotation marks. You must include any content you use in quotation marks.
Other Typical Operations
The most frequently used functions on the Home and Formulas toolbars are conveniently located adjacent to the sigma (or sum symbol). As follows:
average \scount \smax \smin
Conclusion
All you need to know to get started with your small business’s accounting operations using Excel for Accounting and Bookkeeping are these very fundamentals of accounting and applications of Excel. However, Excel also has a plethora of other features useful for bookkeeping. As you gain experience with the software and accounting in general, you’ll be able to utilize it to do things like create reports, plan for future costs, and format your own financial statements for analysis and reporting.
Click to- Accounting and Bookkeeping
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