Can you use Excel for Bookkeeping?

Chances are that if you are running your own business you are probably using Microsoft’s spread sheet application Excel for some of your daily business functions.  Or maybe you are really interested in Excel but find it intimidating. In either case Excel, like any other tool has situations that it is ideally suited for and situations that call for a different or better suited tool.

Choosing the right tool for the job can make all the difference. Most of us realize that even though we could hammer in a screw, the proper tool is really a screwdriver.

And so it goes with accounting; Can you use Excel for bookkeeping? The short answer is yes. Now here comes the “but“… While it certainly is capable of managing your bookkeeping it is really not the best tool for the job. It’s like using a hammer when what you really need is a battery operated screwdriver.  After all, the whole point of using software in the first place is to make your life easier and not more complicated!

Excel is amazing, it really is. I just love it! In fact I love it so much I am always looking learn more about some of the lesser known features and functions. The key is to understand when to use Excel and when to find software that was designed for the task you are trying to accomplish. Here are 5 ideal uses for Excel:

1. Analyzing data using charts and graphs.

There are times when your data is best displayed using a visual interpretation. Excel does an amazing job of taking your numbers and almost magically formatting them into anything from your basic 2-D columns to 3-D pie charts. When you need to see a progression over time Excel is especially adept at assisting you with trend analysis. Not to mention how awesome pivot tables are; a pivot table in its most basic terms is a way to group, sort and filter data from a table.

Excel for bookkeeping

Easily create 3-D pie charts

2. Creating lists and tables.

A very practical application for Excel is maintaining your client list. Once you data has either been exported or manually entered into a worksheet it is only a few quick steps to then format it as a table. The real benefit comes when you need to sort or filter your information based on a set criterion. For instance, you have a variety of clients from several different geographic locations. By applying a filter you can refine or segment your list for a specific city or region. Several other business applications allow you to upload existing client files directly from Excel; which is super handy for quickly adding your client file to your new bookkeeping program.

Excel for bookkeeping

Format your data as a table

3. Use conditional formats to quickly identify key information.

Ever wonder who your top clients were? Or perhaps you are trying to quickly identify items that require follow up. Sometimes there is data that has been duplicated that needs to be merged. Conditional formats allow you to highlight cells that meet specific “rules”.  When working with very large tables that have a lot of data a conditional format is extremely helpful.

Excel for bookkeeping

Highlight cells to quickly identify them

4. Performing complex calculations.

Calculators are great…unless you have Excel. Did you know there is an embedded formula that can calculate the amount of interest you will pay on that loan? You can also create an entire amortization schedule, which is super handy when you interest payment is a deductible expense but not the principle payment.  How cool is it that you can factor in time intervals? For instance your payment terms are net 45 and you don’t have a calendar handy but you know today’s date; Excel can tell you the day of the week, the month and the year that invoice is due.

Excel for bookkeeping

Complex calculations such as loan schedules

5. Linking data and objects from other workbooks and files.

Have you ever added a hyperlink to an e-mail? You can also add links to you Excel workbooks.  Maybe you need to add a link to an image stored on your computer, or perhaps to an outlook contact, a website, you can even link to other Excel workbooks. Adding links to your file saves you time by quickly accessing information stored elsewhere.

Excel for bookkeeping

Link to data stored elsewhere

As we discussed earlier; while this very powerful and adaptable program certainly CAN handle your small business bookkeeping needs you should really consider using a dedicated accounting program and here  are 4 reasons why.

1. Accounting relies on a double entry system in order to create balance and reduce errors.

Without getting overly technical; all accounting applications are really at their core, complex referential databases. Meaning every entry you make affects data in another part of the program.  It is much harder to achieve this balance using Excel because establishing the relationships is complex and requires education and experience.  As such, the likelihood for human error will be so much higher. If the thought of double entry accounting makes you go cross eyed then you should really be using dedicated accounting software.

2. Integration with other applications.

Most accounting software applications now offer third party integrations. In English; your accounting program can communicate with your Customer Resource Management software, your banking, and your e-commerce solution. It almost seems like the possibilities are endless, and where they do end there is a service called Zapier that picks up the slack by allowing you to create your own custom integrations or Zaps. It is seriously cool!

3. Data can easily be lost or overwritten.

Pause and think about that time that you lost a word document that you had been working on for hours. Ouch! Painful right? I bet you still get frustrated just remembering it. Now imaging losing information that you need to complete your taxes. Or trying to locate a specific invoice for that client that needs another copy for their own records.  The point is you don’t have time for this. You are a very busy entrepreneur and your time is money.

4. Most importantly there is a lack of an audit trail.

When it comes to electronic record keeping the government requires access to whom or what changes have ever been made to your entries. Audit trails add transparency to your financial records.  Your audit trail is also a great tool for you as a business owner in cases where an overzealous employee may accidentally (or not) alter data that should not be changed.


I would love to hear your thoughts in the comments below. What software do you currently use for your business’ accounting?


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