How to Do Accounting in Excel in 6 Steps

For many small businesses, Excel is a core part of daily operations. It’s used for everything from budgeting to inventory tracking. When it comes to financial accounting, Excel can even serve as a powerful stand-in for dedicated accounting software, offering flexibility, full control over data, and a low-cost way to manage business finances. 

With the right setup, Excel accounting can handle income tracking, expense management, invoicing, and financial reporting. By applying key formulas, templates, and a few simple tricks, you can transform Excel into an efficient accounting solution that saves you time—and sheds invaluable insight into your business’s financial operations. 

Is Excel a Good Choice for Accounting?

Excel is a powerful and versatile tool, but is it the right choice for managing business finances? The answer depends on the size of your business, the complexity of your financial transactions, and how much time you’re willing to dedicate to manual data entry and upkeep. While Excel offers full control over financial tracking, it also comes with limitations that can make accounting tedious as a business grows.

For small businesses with simple financial needs, Excel can be a great solution for tracking income and expenses. However, as transaction volumes increase and financial complexity grows, it may be worth considering an automated accounting system that reduces manual work and minimizes errors.

Step 1: Set Up Your Excel Accounting System

Before using Excel for accounting, it’s important to set up a well-organized spreadsheet that simplifies data entry and reporting. A structured approach ensures that financial records are easy to navigate and update. Start by creating a master spreadsheet with dedicated sheets for different financial components, such as:

• Transactions: Logs all income and expenses.
• Chart of Accounts: Categorizes financial data for better tracking.
• Balance Sheet: Summarizes assets, liabilities, and equity.
• Profit & Loss Statement: Tracks revenue, expenses, and net profit.
• Invoice & Payments: Manages client billing and payments received.

Using Excel tables and formatting tools can make data entry and calculations easier. Apply filters, conditional formatting, and freeze panes to improve visibility and efficiency. A well-structured Excel file reduces errors and improves financial clarity, setting the foundation for smooth accounting management.

Step 2: Create an Income & Expense Tracker

Tracking income and expenses is the foundation of any accounting system. In Excel, this can be done using a simple table with predefined categories, making it easy to see where money is coming from and where it’s going. Start by setting up a table with the following columns:

Using Excel formulas, the balance column can be set to automatically calculate running totals. Apply SUM formulas to track monthly income and expenses, and use filters to analyze spending patterns by category. A well-structured tracker provides real-time visibility into financial health without the need for external software.

Step 3: Use Excel Formulas for Accounting

Excel’s built-in formulas eliminate the need for manual calculations, reducing errors and speeding up financial tracking. Learning a few essential functions can transform a basic spreadsheet into a powerful accounting tool. Here are some of the most useful Excel formulas for accounting:

• =SUM adds up total income and expenses.
• =IF creates conditional logic (e.g., flagging overdue invoices).
• =VLOOKUP pulls data from other sheets (e.g., linking transactions).
• =ABS ensures all expense values display as positive numbers.
• =ROUND rounds numbers to avoid decimal inconsistencies in financial reports.

For example, to calculate a running balance, you’d use: =SUM(D2,-E2+F1). With a strong grasp of Excel formulas like these, businesses can automate calculations, improve accuracy, and reduce the time spent on financial management.

Step 4: Automate Reports with Excel Templates

Manually compiling financial statements can be time-consuming, but Excel templates and pivot tables make it easier to generate reports on demand. Instead of tracking everything in a single spreadsheet, businesses can create dedicated Balance Sheets, Profit & Loss Statements, and Cash Flow Reports that pull data from the main transaction sheet. A simple Profit & Loss (P&L) statement might look like this:

Using pivot tables, users can filter and group financial data dynamically. Conditional formatting can also be applied to highlight key insights (e.g., low cash flow or overspending). By setting up automated reports, Excel can provide a quick snapshot of financial performance without repetitive data entry.

Step 5: Manage Invoices & Accounts Receivable

Excel can be used to create a custom invoice template, allowing businesses to send and track payments manually. In a dedicated sheet, set up an invoice layout with fields for:

• Invoice Number
• Customer Name
• Invoice Date & Due Date
• Line Items (Products/Services, Quantity, Price, Total)
• Tax & Discounts
• Total Amount Due

Once invoices are issued, businesses can track payments with a simple status column (e.g., Paid, Pending, Overdue). Applying conditional formatting can automatically highlight overdue invoices in red, making it easier to follow up on outstanding balances.

Though Excel allows for manual invoice tracking, businesses dealing with high transaction volumes may find it more efficient to switch to an invoicing tool integrated with accounting software.

Step 6: Reconcile Bank Statements in Excel

Reconciling financial records with bank statements ensures that every transaction is accounted for and that no discrepancies exist. In Excel, this can be done by importing bank transaction data and matching it against the records in the income & expense tracker. A reconciliation sheet typically contains:

By using Excel’s conditional formatting, unmatched transactions can be flagged for review. Adding a column for status (Matched, Review, Missing) helps keep the reconciliation process organized. While Excel works for small-scale reconciliation, businesses with high transaction volumes may find bank-linked accounting software a more efficient solution.

North One Helps Streamline Business Accounting

Excel works well for small businesses that need a simple, customizable way to track finances, but as a business grows, manual accounting becomes harder to manage. Increased transaction volume means more time spent on data entry, error correction, and reconciliation, all of which can slow down operations and introduce mistakes.

For businesses looking to simplify their accounting, North One offers a modern alternative to manual Excel tracking. Instead of entering transactions by hand, businesses can connect their North One account to automatically track spending, categorize expenses, and generate financial reports with minimal effort.

North One integrates with popular accounting software like QuickBooks and Xero, allowing businesses to sync transactions effortlessly. With budgeting tools, automated invoicing, and mobile-friendly banking, North One helps business owners spend less time managing spreadsheets and more time focusing on growth. 

Is Excel Accounting Enough for Your Small Business?

Excel is a powerful, accessible tool for small business accounting. With the right setup, it can handle income tracking, expense management, and financial reporting, making it a solid option for businesses with simple financial needs. However, as transaction volume increases and accounting tasks become more complex, manual spreadsheets can become a liability.

Whether sticking with Excel or transitioning to a smarter financial tool, the key to effective accounting is accuracy, organization, and a system that scales with your business. North One is here to support you along the way. Open a business bank account today!