Good Bookkeeping saves TAX: Simple using MS Excel -part 2

Today we’ll continue from last week’s break down of bookkeeping basics in plain English. We’ll begin showing how you can get started with a spreadsheet (Excel or Google Sheets).

Step-By-Step Excel Setup for Simple Bookkeeping

You don't need expensive fancy bookkeeping software to get started. Microsoft Excel (or Google Sheets) is a powerful, accessible tool that most small business owners already have.

With a few well-organized categories and simple formulas you can record transactions, create monthly reports, and produce the totals your accountant will need — which also makes tax time faster and less expensive.

Step 1: Create Your Income Sheet

Open Excel and create a new spreadsheet. Make columns for:

• Date (when you received payment)

• Description (what the payment was for)

• Customer name

• Payment method (cash, credit card, etc.)

• Amount

Step 2: Create Your Expense Sheet

On a new tab, create columns for:

• Date (when you paid)

• Description (what you bought)

• Vendor (who you paid)

• Category (supplies, rent, marketing, etc.)

• Amount

Step 3: Set Up Simple Formulas

Excel can do math for you! At the bottom of your income and expense sheets, use the SUM function to add up your totals. Type =SUM(B2:B100) to add all amounts in column B from rows 2 to 100.

Step 4: Create a Monthly Summary

On a third tab, create a monthly summary that shows:

• Total income for the month

• Total expenses for the month

• Profit (income minus expenses)

• Top expense categories

How Excel bookkeeping simplifies tax time

Doing your own bookkeeping in Excel helps at tax time in several ways: categorized expense totals map directly to tax categories (making deductions easier to identify), monthly profit and loss summaries provide the core numbers your accountant needs, which helps reduce the time an accountant spends untangling transactions. In short, clean Excel records typically mean a faster, less expensive tax return.

When to consider bookkeeping software

Excel is ideal for most, especially when getting started, but as transactions grow you may want bookkeeping software to automate bank imports, recurring invoices, and payroll. You'll need automation when manual data entry takes too much of your time or when you have many monthly transactions (several hundred or more) — at that point, if you can properly learn, bookkeeping software can reduce time and speed up reporting. For now, Excel plus clear categories and ongoing data entry will serve most small businesses well.

Bookkeeping Best Practices for Small Businesses

Keep Business and Personal Separate

Always use separate bank accounts and cards for business and personal money. That simple step makes bookkeeping cleaner, reduces errors, and saves your accountant time (and you money) at tax time because transactions are easier to categorize.

Save All Receipts

Keep receipts for everything you buy for your business. Take photos of paper receipts so you don't lose them.

Set a Regular Schedule

Don’t wait until tax time. Spend a small, consistent block of time each week (or at least monthly) on bookkeeping tasks so the work doesn’t pile up. A quick weekly checklist can include:

• Enter new income and expenses into your income and expense sheets

• Run a short profit and loss snapshot to spot issues

• Backup the Excel file to cloud storage

Keeping up with these bookkeeping tasks saves hours later and lowers the cost of tax preparation because your records are organized and ready to hand off.

Common Bookkeeping Mistakes

When to Get Help with Your Bookkeeping

Starting with Excel is a great way to learn bookkeeping, but as your business grows you may reach a point where professional help saves time and reduces costs. Consider hiring a bookkeeper or accountant when:

• Your business is growing quickly and transactions are increasing

• You're spending too much time on bookkeeping instead of running the business

• You're not confident that your records or categories are correct

• You need to apply for a business loan and must supply clear financial statements

• Tax time becomes overwhelming or you want to minimize tax-prep fees

Frequently Asked Questions About Bookkeeping for Small Businesses

How does doing my own bookkeeping in Excel help at tax time?

When you keep tidy Excel records you’ll have categorized totals and supporting receipts ready: use consistent categories that match tax deduction lines, and produce monthly profit and loss summaries to hand your accountant. This reduces the time an accountant spends sorting transactions and typically lowers your tax-preparation costs. In short, clean Excel data helps your tax return be completed more quickly and less expensively.

How much time should I spend on bookkeeping each week?

For most small businesses, setting aside 1-2 hours per week is enough to keep your books in order. The key is consistency - a little time each week is better than scrambling at tax time.

Do I need special software for bookkeeping?

No — especially when you're starting out, Microsoft Excel or Google Sheets works well for basic bookkeeping like income and expense tracking, simple reports, and receipt referencing. As your business grows and transactions significantly increase, or you require payroll, you might want to consider accounting software that can automate more tasks.

What documents will my accountant or bookkeeper ask for?

You'll generally need to provide: bank statements, copies of invoices and receipts, payroll records (if any), your Excel bookkeeping file or bookkeeping software exports, and summaries like month-end profit and loss statements. Preparing these documents in advance — speeds up the process and reduces fees.

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