This is part one of a three-part series on doing your own bookkeeping with spreadsheets. This introductory post covers the benefits and limitations of using spreadsheets for bookkeeping.
Quick summary: spreadsheets can be useful and are a big improvement over hand-written accounts books, but most businesses will eventually grow large enough to benefit from the efficiencies of accounting software.
There are many benefits of using spreadsheets for bookkeeping instead of written account books:
- Corrections: as with a lot of computer work, it is easier to correct digital mistakes than written mistakes.
- Formatting: spreadsheets have a flexible grid layout and it is easy to add borders to visually group information.
- Formulae: save lots of calculator work by using formulae, especially SUM() and the Autosum button.
- Re-formatting: data can be easily re-formatted within the spreadsheet using formulae and copy/paste, and/or imported into other software.
Spreadsheets have some limitations compared to accounting software, mostly as the business grows in size and complexity:
- Invoices and purchase orders: spreadsheet templates can be useful in the beginning, but are cumbersome at higher volumes.
- Accruals: debtors and creditors are easier in accounting software, especially for reporting, deposits and contacts.
- Inventory: accounting software maintains a record of changes and has a better flow through purchase order, goods receipt, usage, and stock take.
- Payroll: accounting software records the underlying accounting transactions automatically and contains calculators, reports, and templates.
- Reporting: accounting software usually contains a large menu of reports with helpful filtering options. Each report template needs to be manually created in a spreadsheet.
- Multiple users: spreadsheets require a higher level of skill to limit user access and track changes.
- High-volume use: difficult situations arise when small problems build up in the accounting records of a high-volume business, particularly if there are no easily-deleted change transactions.
- Balance sheets: requires accounting knowledge to set up the necessary formulas in a spreadsheet, but is taken care of automatically in accounting software.
- Multiple legal structures: the same as the above point, but requires even more complicated spreadsheets.
The next post will cover creating a simple bookkeeping spreadsheet template which can be copied for multiple uses. A third post will detail how to use the template.