When starting a business you are required to maintain a set of financial records. Even if you decide to use software like Quick Books, you will still benefit from knowing how to manually record you books.
Accounting professionals go to school to learn how to manually book keep. Nowadays we have software’s to help us with the process. Thank God! This saves a lot of time,effort and can reduce errors. Bookkeeping errors increase IRS audits. However, I understand everyone is not ready to learn a new software. So I provide a few keep points on how to do your books yourself. To assure you are in compliance with the IRS you can upkeep your Income Statement with excel. Below are a couple key points on how to do that assuming you have basic knowledge of excel.
The first thing you want to do is: Create your chart of accounts
These accounts are the income and expense accounts you will like to track. For example, sales or revenue is a chart of account. However, I’ll be a little more specific. As an Accountant my sales accounts are broken into several charts of accounts like consulting, bookkeeping, taxes, e-courses, e-books etc. Also create expense accounts like utilities, rent, advertising telephone, internet, supplies and materials, professional fees, licensing etc.
The next things you want to do is: Create an excel sheet 1
Label this your Cash receipt tab. Label sheet 2 Expenses and the 3rd sheet will be labeled Income statement.
After creating your tabs: Label your columns
Cash receipt tab should have a date, name , and chart of accounts (in my case would be bookkeeping, consulting etc.) The amount of the transaction will be listed under the particular account name. Set up all accounts to total sum separately at the bottom of the columns and transfer to sheet 3.
The expense tab should have date, vendor name, and chart of account listed, such as rent, utilities, professional services. The amount of the transaction will be listed under the particular account name. Set up all accounts to total sum at the bottom of the columns.
After labeling your columns: On your third sheet you will need to list your income accounts
This time list them vertically. Each account TOTAL sum should be transferred from sheet 1. By using[ = (select cell on sheet 1)].
You will also list your expenses accounts beneath you income account vertically. Transferring each total over by using the formula above [ = (select cell on sheet 2)].
To wrap it up: On sheet 3 Total sum all your income accounts and Total sum all your expense accounts.
At the bottom take your income less your expenses and that will be your profit
I would suggest doing this on a monthly bases. Each month you will have your Income less your expenses and you can determine your profit. You can compare your income statement with previous months.
For your year end, just transfer all monthly financial records in a master sheet. This will give you an accumulated yearly amount.
If you are a business owner and need to learn more about the accounting process and managing your books join my free webinar to learn the language of an accountant which will allow you to better manage your business.