Guide to Excel for accounting: Methods, templates, and limits

Using Excel for accounting and creating an Excel accounting spreadsheet is a standard starting point for sole traders and small startups. However, understanding how to post journal entries, build general ledgers and reconcile balances correctly—and knowing when it’s time to upgrade—is vital for business growth.

Read on to learn how to set up and run accounting in Excel and the benefits and limitations involved. Plus, discover how switching from basic spreadsheets to QuickBooks could help support your accounting needs as your business grows. 

Using Excel for accounting: In summary

• Excel is an accessible, low-cost accounting tool for new businesses looking to track basic income, expenses, and invoices. It’s familiar to many and is able to perform a range of advanced calculations.

• Operating a spreadsheet accounting system requires manually maintaining a chart of accounts, posting debits and credits, and closing temporary income statement balances monthly.

• Spreadsheets are typically not designed to scale like cloud accounting. As your business expands, relying on Excel could increase the risk of broken formulas, inconsistent audit trails, and could ultimately create Making Tax Digital (MTD) compliance issues.

What is accounting in Excel?

Accounting in Excel means using Microsoft Excel to manually record business-related financial transactions. For example, tracking basic income, expenses and invoices through spreadsheets, formulas and templates. 

The familiarity and accessibility of the Microsoft Excel interface make it an attractive option for startup businesses and self-employed individuals looking to easily carry out manual accounting operations. 

Why use Excel for accounting?

Microsoft Excel is a popular starting point for self-employed individuals, sole traders and early-stage startups with simple financial structures and limited software budgets. The following features make it a great choice for basic bookkeeping: 

• Low cost. Excel is free to use online. The desktop software requires a subscription but can be more affordable than dedicated bookkeeping software. 

• Widely accessible. The platform can be accessed from virtually any device, as well as online and offline. 

• Familiar interface. Most people are familiar with basic Excel spreadsheet navigation and formulas, which can save time compared to specialist system training.

• Customisable templates. Bespoke templates make it easy to manage everyday accounting tasks. 

Common Excel accounting tasks

So, what accounting functions can you perform in Excel? Here are the primary operational workflows that small businesses and sole traders handle when using spreadsheets for bookkeeping: 

Categorising income and operational expenses

Business owners can use Excel to log incoming payments and outgoing expenditure line by line, tagging entries by category to track net margins and organise records for calculating VAT, Income Tax and Corporation Tax liabilities. 

Building and managing a chart of accounts

Excel spreadsheets are used to establish a master list of all the accounts used to record your business transactions (chart of accounts). It groups your accounting into categories such as income, expenses and assets. This can help you organise balance sheets assets alongside temporary revenue and cost accounts. 

Manual bank reconciliation and statement matching

Small businesses and sole traders can cross-check spreadsheet entry logs line by line against downloadable PDF or CSV bank statements to easily spot discrepancies, unrecorded bank fees or missing payments. Bank reconciliation templates help streamline this process to ensure nothing gets missed. 

Generating customer invoices and tracking aged debt

Many businesses use customisable spreadsheet templates in Excel to draft client invoices, log issue dates and monitor overdue balances using basic date calculation formulas. This can help keep operations running smoothly. 

How to set up and run accounting in Excel

It’s easy to set up your accounting in Excel. Follow our step-by-step guide to get started in no time. 

Step 1: Build out your chart of accounts

The first thing you need to do is build out your chart of accounts. This lists out all your account numbers and descriptions. Place your balance sheet accounts (cash, inventory, accounts receivable) first, then follow with your income statement accounts (revenue, cost of sales, operational expenses).   

Step 2: Post double-entry journal entries

Next, it’s time to create a separate document to post journal entries. A journey entry records accounting transactions in chronological order and includes the following information:

• Journey entry number

• Accounts

• Transaction amounts

• A description of every entry.  

To create a template for your journals every month:

1. Copy and paste your chart of accounts into the spreadsheet.

2. Add in column headings for the date, account number and title.

3. Add a new row to the spreadsheet to post a new entry.

4. Copy and paste the account number and titles from the chart of accounts into the journal. 

Formulas can help verify that the total debits equal total credits. 

Step 3: Maintain general ledger templates

Your general ledger records every transaction your company posts through its lifetime. This includes your journal entries. These are organised by account. 

Here’s how to set up a general ledger template for each account in your chart of accounts:

1. At the start of the month, post every balance sheet account’s starting balance in a blank general ledger template.

2. Each time you post a journal entry, post the activity to the ledger.

3. As the month closes, work out the closing balance for every account. Use the closing balances in the general ledger to create the trail balance.  

Income statement balances reset to zero monthly, while balance sheet accounts carry ending balances forward. 

Step 4: Reconcile a trial balance

The trial balance records every account used to post transactions and the current account balance. Here’s how to create a trial balance in Excel:

1. Pull the account numbers and descriptions from the chart of accounts and copy the date into a new sheet.

2. Create a debit and credit column next to every account. Post the closing balance for each account from the general ledger to the sheet.

3. Total the debits and credits for every account to verify that total debits match total credits across the business before drafting financial statements. 

Step 5: Post net income and close accounts

Net income isn’t listed on the chart of accounts. It is calculated on the income statement as total revenue, minus total operational expenses. You’ll use net income for the balance sheet. 

To post net income in Excel:

1. Create an Excel template and generate the balance sheet every month

2. Keep formulas for subtotals

3. Post the account balances from your trail balance.

Net income is transferred to the equity section of the balance sheet. 

Income statement accounts are temporary, posting net income to balance sheets resets revenue and expense account balances to zero for the start of the new month. While permanent balance sheet accounts carry their ending balances forward. 

Essential Excel formulas and formatting for bookkeeping

Here are some of the more commonplace formulas and formatting that can help streamline Excel bookkeeping. 

• SUM & SUMIF: Useful for aggregating total transaction ranges and adding category-specific line items (for example totalling only sales revenue).

• XLOOKUP: Useful for searching account numbers or client details across ledger sheets quickly.

• COUNTIF & DATEDIF: Useful for tracking unpaid invoice volumes and measuring aged debt duration.

• AVERAGE. Useful for calculating the average sales for a business quarter or finding the average monthly expenses for the year. 

• LARGE & SMALL. Useful for finding the highest or smallest value in a range, such as the highest revenue in a list of earnings. 

Formatting best practice for Excel accounting

• Accounting Number Format (e.g. currency symbols & two decimal places). This keeps the financial data in your sheets clean and accurate. 

• Left-align text. Helps improve readability and match the standard left-to-right reading flow. 

• Right-align figures. Lines up numbers by place value and fixes decimal points to make it easier to compare values quickly. 

• Freeze headers. Keeps rows or columns in your sheet visible while you scroll.

• Conditional formatting. Helps you highlight negative cash balances automatically.

Advantages and disadvantages of Excel accounting

Not sure if Excel accounting is right for you? Weigh out the advantages and disadvantages below to help you decide. 

Advantages of spreadsheets for early-stage startups

• Zero extra costs. If Microsoft Office is already owned, this can be a cost-effective option. 

• Layout flexibility. Customise your spreadsheets to your specific needs.

• Familiar user controls. Reduces the need for extra training as most people know how to carry out simple bookkeeping tasks.

• Offline accessibility. Files can be saved and edited offline.

• Automation capabilities. Excel formulas for accounting can help streamline tasks.

Disadvantages of spreadsheets for early-stage startups

• Time-consuming. Building out your chart of accounts and creating a separate document to post journal entries can be time-consuming.

• Increased risk of mistakes. Manual data entry and collaborative spreadsheets can increase the risk of errors.

• Absence of automated bank feeds. Excel doesn’t automate bank feeds unlike accounting software.

• Limited reporting capability. Excel is best suited to simple bookkeeping rather than complex reports.

• Not built for scaling. Excel cannot sustain large volumes of data, meaning the platform may start to lag as your business expands.

• Security risks. Bookkeeping in Excel increases the risk of lost and corrupt files as well as accidental overwrites.

• Version control confusion. Sharing Excel files with your team can lead to confusion over the most up to date version. 

Upgrade from Excel spreadsheets to QuickBooks cloud accounting

Switching from an Excel accounting spreadsheet to cloud accounting which can automate bank feeds, allow you to scan receipts directly to journal entries, helps you calculate liabilities for VAT, Income Tax, or Corporation Tax, and helps you eliminate manual double-entry. This prevents potentially costly errors and helps streamline Income Tax or VAT compliance. 

Learn more about QuickBooks accounting software for sole traders.

Excel accounting FAQs

Can I run full double-entry accounting in an Excel spreadsheet? 

Yes, you can create a full double-entry system in Excel by establishing a chart of accounts, journal entry sheets, general ledgers, and trial balances. However, doing so requires manual entry for every debit and credit. This can be time consuming and can increase the risk of calculation slips as your business grows.  

How do temporary and permanent accounts work when closing months in Excel? 

Balance sheet accounts, such as cash and equity are permanent and carry their balances forward month to month. Income statement accounts, such as revenue and expenses are temporary. At month-end, net income is posted to equity on the balance sheet, resetting revenue and expense totals to zero for the start of the next month. 

Is Excel good for accounting?

Excel can be a great start-out bookkeeping tool for small businesses and sole traders due to its ease of use, cost-effectiveness and ability to carry out simple bookkeeping tasks. However, Excel may not be suitable as your business expands as it relies on manual data entry and struggles to scale large volumes of data. 

How can switching from Excel to QuickBooks help my accounting?

Switching from Excel to QuickBooks can help automate manual tasks to save time and reduce the risk of human error. QuickBooks gives you access to all the professional accounting tools you need as your business grows. Real human support is also available whenever you need to help make accounting a breeze. 

Is there an accounting template in Excel?

Yes. Microsoft Excel has a range of downloadable accounting templates that can help get you started with bookkeeping. You can download a pre-built Excel bookkeeping template directly from the Microsoft Excel template hub, or build your own custom templates from scratch. It’s completely up to you.

The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.

This information is intended to outline our general product direction, but represents no obligation and should not be relied on in making a purchasing decision. Additional terms, conditions and fees may apply with certain features and functionality. Eligibility criteria may apply. Product offers, features, functionality are subject to change without notice.