How to use Excel for accounting in 2025 (free template)

When you start your business, time and money are in short supply. Your top priorities are finding customers and delivering a great product or service. Bookkeeping and accounting likely aren’t at the top of your to-do list.

Many small business owners use a Microsoft Excel accounting template at first because it’s more familiar and straightforward. However, most accounting professionals encourage the use of online accounting software for easy and more accurate accounting and bookkeeping. 

Excel is a very straightforward way to do it, but you’ll still need to understand the accounting process and how to complete each task using Excel. You’ll need to set up accounts, post transactions, and create your income statement using Excel—that’s where this beginner’s guide comes in to simplify how to set up and use Excel for accounting. 

How is Excel used for accounting?

How to use Excel for accounting

The most useful formulas and formatting tricks in Excel

How to apply accounting number format in Excel

Excel vs. accounting software

When to use accounting software

Streamline your accounting and save time 

Excel accounting FAQ

How is Excel used for accounting?

While dedicated accounting software is a great option for businesses of any significant size, Excel can still play a role in certain accounting functions. Its flexibility and familiarity make it useful for specific tasks, especially for personal management or very small businesses with simple bookkeeping needs. 

Here are some common ways people use Excel for accounting:

• Creating a chart of accounts: Excel can be used to list and organize all the accounts a business uses to track its finances.
• Tracking income and expenses: Spreadsheets can be used to record and categorize income and expense transactions.
• Generating invoices: Simple invoice templates can be created in Excel to bill customers.
• Reconciling bank statements: Excel can help compare bank statements with internal records to identify discrepancies.
• Budgeting: Spreadsheets are often used to create and manage budgets, forecasting income and expenses.
• Financial reporting (basic): Simple income statements can be generated in Excel, though more complex financial reports are difficult to produce accurately.
• Personal finance tracking: Excel is frequently used for personal budgeting, tracking investments, and managing household finances.

To get started with basic bookkeeping in Excel, our free 2025 Excel accounting template can help you track your income and expenses. Let's explore how to use Excel for these tasks.

How to use Excel for accounting

Let’s use our template to create an example of how to use spreadsheets for accounting. In our template, Centerfield Sporting Goods is using an Excel accounting template to manage its business. The first thing they’ll need to do is create a chart of accounts: 

1. Create a chart of accounts 

The chart of accounts lists every account, assigns it a number, and lists the account’s description. Income will appear first. Centerfield assigns account numbers in the 1000s for income accounts (for example, #1000 for sales revenue). Expense accounts start at 2000 and go up from there. 

Centerfield sells baseball equipment and offers coaching services. They can add, remove, and change accounts as needed. Once you build a chart of accounts in an accounting spreadsheet, the next sheet is where you’ll post journal entries (also referred to as financial transactions). 

4. Create the income statement

The financial statement you’ll need to be familiar with when doing Excel accounting is the income statement. The balance sheet and statement of cash flows can be challenging to generate in Excel. 

As your business grows, you can use accounting software to produce all three statements. Excel accounting might limit you to income statements. From the Excel template, you can generate the income statement each month. Keep the formulas for the subtotals so that you can check your work.

Net income is the net impact of all monthly revenue and expense transactions. You can create a new sheet on the first day of each month or simply continue using the general ledger tab to record transactions. You can then update the date range on the income statement tab to reflect your current period.

The most useful formulas and formatting tricks in Excel

Mastering a few key formulas and formatting tricks in Excel can significantly improve the efficiency and accuracy of your accounting tasks. These tools can help you automate calculations, present data clearly, and ultimately make better financial decisions.

Must-know Excel accounting formulas and functions

These essential formulas are the foundation of effective Excel accounting: 

• SUM: This adds values in a range of cells. For example, the formula =SUM(A1:A10) would add the values in cells A1 through A10.
• SUMIF: This is handy for adding values only when they meet a certain condition. Let's say you want to add up all your sales figures. If your sales data is in column D, and the corresponding amounts are in column E, you could use =SUMIF(D1:D10,"Sales",E1:E10) to add up the amounts in column E only where the corresponding cell in column D says "Sales".
• XLOOKUP: This replaces older lookup functions like VLOOKUP and HLOOKUP. It's much more flexible and easier to use. For example, =XLOOKUP(A1,B1:B10,C1:C10) would look up the value in A1 within the range B1:B10 and return the corresponding value from the range C1:C10. This is essential for finding specific data within a larger dataset, like looking up account balances or customer information.
• DATEDIF: This calculates the difference between two dates. For example, =DATEDIF(A1,B1,"y") would return the number of years between the date in A1 and the date in B1. Using "m" instead of "y" would return the difference in months, and "d" would return the difference in days. This is useful for calculating things like the age of an invoice or the duration of a loan.
• PMT: This calculates the payment for a loan based on constant payments and a constant interest rate. For example, =PMT(0.05/12,24,10000) would calculate the monthly payment for a $10,000 loan with a 5% annual interest rate and a 2-year term.
• FV: This calculates the future value of an investment based on periodic payments and a constant interest rate. For example, =FV(0.05/12,24,-100) would calculate the future value of an investment where $100 is invested monthly for 2 years at a 5% annual interest rate.
• COUNTIF: This function counts the number of cells within a range that meet a given criterion. For example, =COUNTIF(A1:A10,">0") would count the number of cells in the range A1:A10 that are greater than 0. This is useful for counting specific types of transactions.

These are just a few examples, and as you become more comfortable with Excel, you'll discover many other useful formulas.

Now that you know some key formulas, let's look at some formatting tips that can make your spreadsheets look professional and easy to understand.

Excel formatting tips

Proper formatting is crucial for presenting financial data clearly and professionally. It can also help you spot trends and errors more easily.

• Accounting Number format: Displays numbers with currency symbols, commas, and two decimal places. This is the standard format for financial data.
• Cell alignment: Align text left, numbers right, and headings center for improved readability. This makes it easier to compare values and understand the structure of your data.
• Conditional formatting: Highlight specific values or ranges based on criteria (e.g., highlight negative values in red). This can help you quickly identify potential problems or areas of concern.
• Freeze panes: Keep headers visible while scrolling through large datasets. This is essential for navigating complex spreadsheets.

When using Excel for accounting, you’ll likely want to update your cell format to the official accounting number style (one of the benefits of accounting software is that you don’t have to worry about this step).

How to apply accounting number format in Excel

When using Excel for accounting, you’ll likely want to update your cell format to the official accounting number style (one of the benefits of accounting software is that you don’t have to worry about this step). 

The accounting number format in Excel will present your data in a way that’s consistent with how accounting professionals display numbers. This format can help make large data sets easier to read and interpret. If your Excel software has a cell format as a shortcut on the Home tab of your spreadsheet, it’s a quick and easy adjustment to make your cells in the accounting number format: 

Now, if you don’t have it, it’s still pretty quick and easy to change your cells to the accounting format.

In particular, here’s how to format any cell in the accounting number format: 

1. Select the cells containing financial data: To apply the format to your financial data, you first need to select the cells containing the data you want to format. You can select multiple cells by holding down the Ctrl key as you click each cell.
2. Open the Format Cells dialog box: Once you have selected the cells you want to format, you need to open the Format Cells dialog box. You can do this by right-clicking on the selected cells and choosing Format Cells from the context menu.
3. Choose the Accounting Number formatting option: In the Format Cells dialog box, select the Number tab and scroll down until you see the Accounting Number formatting option. This option will display your financial data with dollar signs, negative values in parentheses, and two decimal places.
4. Customize the formatting options (optional): If you want to customize the Accounting Number format, click the Options button in the Format Cells dialog box. Here, you can choose different currency symbols, adjust the number of decimal places displayed, and modify other options to better suit your needs.
5. Apply the Accounting Number format to your data: Once you have selected the Accounting Number formatting option and customized it (if desired), click OK to apply the format to your financial data.

The accounting number format in Excel can help organize and analyze your organization's financial data. 

Excel vs. accounting software 

Microsoft Excel is a versatile tool that can be helpful for basic accounting tasks, especially for very small businesses or those just starting out. However, it's essential to recognize its limitations, particularly as your business grows and your accounting needs become more complex. While Excel can be a stepping stone, dedicated accounting software often becomes necessary for long-term efficiency and accuracy.

Where Excel excels

For simple bookkeeping, Excel offers some key advantages. It can be a good starting point for businesses with very basic needs or those on a tight budget.

• Cost-effective: Most businesses already have Microsoft Excel, making it a low-cost or even no-cost solution.
• Familiarity: Many people are familiar with Excel's interface and basic functions, reducing the initial learning curve.
• Flexibility: Excel allows for more customization, enabling users to tailor spreadsheets to their specific needs.

While Excel can be a useful starting point, its limitations become more apparent as your business evolves.

Excel's limitations

As your business grows, relying solely on Excel for accounting can become problematic. The manual processes and lack of key features can lead to an increased risk of errors and inefficiencies, like:

• Manual data entry: Manual data entry is time-consuming and increases the risk of human error, which can lead to inaccurate financial reports.
• Lack of automation: Excel lacks the automated features of accounting software, such as automatic journal entries and bank reconciliations, making bookkeeping more labor-intensive.
• Limited reporting capabilities: While you can create basic reports in Excel, generating complex financial statements like balance sheets and cash flow statements can be challenging and prone to errors.
• Scalability issues: Excel struggles to handle large volumes of transactions efficiently, making it unsuitable for growing businesses.
• Security risks: Excel files are more vulnerable to data loss or corruption compared to cloud-based accounting software with robust security measures.
• Collaboration challenges: Sharing and collaborating on Excel spreadsheets can be cumbersome and prone to version control issues.

As your business expands and transactions increase, these limitations can significantly impact your accounting processes. This is reflected in recent trends. Data shows a declining reliance on spreadsheets for small business accounting as businesses recognize the need for more robust solutions. For instance, Intuit's Small Business Insights highlights how spreadsheet usage is decreasing over time, indicating a shift towards dedicated accounting software.

When to use accounting software

Dedicated accounting software becomes essential when your business outgrows the capabilities of Excel. It streamlines accounting tasks, improves accuracy, and provides valuable insights into your business's financial health.

Accounting software offers several benefits. It automates many of the manual tasks involved in bookkeeping, such as recording transactions, generating reports, and reconciling bank accounts. This not only saves time but also reduces the risk of errors. Furthermore, accounting software provides real-time access to financial data, allowing you to make informed decisions about your business.

Here are some features you get with accounting software like QuickBooks:

• Automated bank feeds: Connect directly to your bank accounts to automatically import transactions, eliminating manual data entry.
• Double-entry bookkeeping: Ensures accuracy by automatically balancing debits and credits for every transaction.
• Inventory management: Track inventory levels, sales, and costs to optimize stock control.
• Accounts receivable and payable tracking: Easily manage invoices, payments, and outstanding balances.
• Financial reporting: Generate professional financial statements, including balance sheets, income statements, and cash flow statements, with just a few clicks.
• Payroll management: Calculate and process payroll, including tax deductions and filings.
• Cloud-based access: Access your financial data from anywhere with an internet connection.
• Integration with other apps: Connect with other business tools, such as e-commerce platforms and CRM systems.

Switching to accounting software is a strategic investment that can save you time, reduce errors, and provide valuable insights into your business's finances. While Excel can be a helpful tool for very basic bookkeeping, accounting software is essential for businesses that are serious about managing their finances effectively.

Streamline your accounting and save time

You can use software like QuickBooks to save time and increase the accuracy of your accounting records. If you need a real-time spending tracker, select from the expense reports available. Then, scan receipts and other source documents and attach them to journal entries. You can also automate recording transactions by downloading your bank statements and credit card activity into your accounting records. You’ll save time and reconcile your bank account faster.

With accounting software, you can process more transactions in less time. Make the switch to accounting software so you’re ready to take on more business.