- Compound Interest: …
- Straight Line Depreciation (SLN): …
- Decline Balance Depreciation (DB): …
- Variable Declining Balance (VDB): …
- Sum-of-Years’ Digits Depreciation(SYD): …
- XNPV: …
- XIRR: …
Accounting is an integral part of most businesses, so it is essential to have a good understanding of the basics. Excel is an incredibly powerful tool for accounting, enabling businesses to easily create financial reports, track budgets, and analyze data. Excel also offers a number of different accounting formulas that can help streamline and automate the process of managing finances. With the right knowledge and expertise, businesses can use Excel accounting formulas to save time and energy and get the most out of their financial data. In this blog post, we will explore the various Excel accounting formulas available, how they work, and the benefits they offer to businesses. We will also provide some tips on how to get the most out of these formulas and make sure they are used effectively.
Excel for Accounting – 10 Excel Functions You NEED to KNOW!
Formulas vs. functions
In Microsoft Excel, you can resolve calculations using both formulas and functions. Formulas are user-defined calculations. For instance, the Excel formula for adding the values in cells B2, B3, and B4 together might be =B2+B3+B4. Functions are built-in formulas in Excel. Examples of functions are SUM and AVERAGE.
Top Excel accounting formulas
Here are some of the most practical applications of Excel formulas and functions for accountants:
1. Asset depreciation
Asset depreciation can be calculated by accountants to determine how much value an asset loses over time. Excel offers five methods for calculating asset depreciation:
Example: Julio is an accountant whose customer wants to spend $5,000 on a boat. The customer is interested in learning how much the boat will depreciate over the course of its first five years. Julio decides to calculate the boats decline balance depreciation. The boat’s salvage value (or residual value), which is its value following depreciation, is $350. The client wants to purchase a boat with an estimated lifespan of 15 years. Julio determines that the boat’s decline balance depreciation is $399 using the formula =DB(5000, 350, 15, 5). 45.
2. Annual interest rate
To determine a loan’s annual interest rate, use Excel’s RATE function.
Formula: RATE(nper, pmt, pv, fv, type, guess)
Example: Mishas client wants to know the annual interest rate on a $7,000 loan that she will pay off over the course of two years by making payments of $350 each month. Misha calculates the annual interest rate on the loan to be 18 using the formula =RATE(24, 350, -7,000)*12. 16%.
3. Compound interest
The addition of interest to a loan’s principal is known as compound interest. Sometimes its described as interest earned on interest. To determine an investment’s future value, you can use the compound interest formula in Excel.
Formula: p * (1+r)^n
Example: Jackie could use Excel to determine her compound interest if she takes out a $500 personal loan to be repaid at 8% over two years. She could calculate her compound interest on the loan at $583 using the formula =500*(1+8%)2. 20.
4. Mortgage payments
The PMT function can be used by accountants to calculate the cost of a mortgage payment.
Formula: PMT(rate, nper, pv, fv, type)
Example: A 30-year, $100,000 mortgage loan with monthly payments is what Marjories’ client wants to use to purchase a home. The loans interest rate is 7%. Marjorie determines that her client would be required to make a $665 monthly payment using the formula =PMT(7%/12, 360, -100000). 30.
5. Future value of investments
The future value function is a tool that accountants can use to determine the future value of an investment.
Formula: FV(rate, nper, pmt, pv, type)
Example: In three years, Nina’s client wants to save money for a down payment on a house. Her client has $7,000 in an interest-bearing savings account with 3% annual yield. Over the next year, the client intends to add $3,000 to the account. By using the Excel formula =FV(3%/12, 36, -3000, -7000), Nina can demonstrate to her client how much money they can save—$120,520. 04 for the down payment.
6. Effective annual interest rate
The EFFECT formula can be used by accountants to calculate a loan’s effective annual interest rate.
Formula: EFFECT(nominal_rate, npery)
An accountant’s client wants to know how much a monthly compounded 30-year loan will actually cost after fees and interest, for instance. The loans nominal interest rate is 8%. The accountant calculates the effective annual interest rate on the loan as 8 using the function =EFFECT(8%, 30*12). 33%.
7. Fixed loan payment interest
Using Excel’s IPMT function, you can determine the percentage of interest on a loan payment that is fixed.
Formula: IPMT(rate, per, nper, pv, fv, type)
Example: A business asks an accountant to calculate the monthly interest payment on a $15,000 loan with a five-year term and a 5% interest rate. The function =IPMT(5%/12, 1, 5*12, -15,000) can be used by the accountant to determine that interest makes up 6% of each monthly payment.
8. Cash flows
Excel’s MIRR function can be used to determine a company’s cash flows. It stands for modified internal rate of return.
Function: MIRR(cash_flows, finance_rate, reinvest_rate)
Example: A company’s quarterly cash flow values in an Excel table show an investment of $5,000 and earnings for each month of the quarter of $6,700, $8,000, and $7,000, respectively. Its required rate of return is 15%. It receives a 10% interest rate on reinvested cash flows. Input =MIRR(A13:A15, 15%, 10%) by a company accountant yields a modified internal rate of return of 70%.
9. Internal rate of return
The internal rate of return for cash flows can be calculated by accountants using the IRR function.
Function: IRR(values, guess)
Example: On an Excel spreadsheet, the F column contains a reference to a company’s annual cash flows. An accountant can determine the company’s annual internal rate of return using the formula IRR(F5:F17).
10. Accrued interest
Accounting professionals can use the ACCRINT function to determine the accrued interest for a security over a specified time period, such as a bond.
Function: ACCRINT(id, fd, sd, rate, par, freq, basis, calc)
An organization wants to determine the interest that has accrued on a bond with a face value of $6,000, for instance. The issue date is 05/01/17. This was also the date that interest began. Its settlement date is 05/01/19. The interest rate on the bond is 6%. The bonds interest is paid quarterly. An accountant calculates the bond’s company-accrued interest using the function =ACCRINT(05/01/17, 05/01/17, 05/01/19, 6%, 6,000, 4).
How do you use Excel for accounting?
- SUM, COUNT, AVERAGE. Any number of columns or rows can be added together using SUM by typing or selecting them. For instance, =SUM(A1:A8) would add up all values between A1 and A8, and so on.
- IF STATEMENTS.
- SUMIF, COUNTIF, AVERAGEIF.
- VLOOKUP. …
- CONCATENATE. …
- MAX & MIN. …
- AND. …
What is accounting function in Excel?
Keep to the income statement and balance sheet if you’re using Excel. To produce the income statement each month, create an Excel template and use it. Keep the subtotal formulas so you can check your work. Post the account balances from your trial balance.