Definition
A chart of accounts is the organized list of all the accounts a business uses to record transactions in its general ledger, grouped into assets, liabilities, equity, revenue, and expenses. Each account has a name and usually a number. It decides how income and costs from invoices and bills are categorized in financial reports.
Also called: COA, Account list
Chart of accounts in practice
A small business chart of accounts might include Cash, Accounts receivable, Accounts payable, Sales tax payable, Service revenue, Product sales, Software expense, and Bank fees. Accounts are often numbered by type, such as 1000s for assets and 4000s for revenue.
Set up revenue accounts that match how you want to analyze your business, for example separating consulting from training income. Map products and services in your invoicing tool to those accounts so every invoice posts to the right place.
Keep the chart simple. Too many accounts make reports hard to read; too few hide useful detail. An accountant can help you set one up that also suits your tax return.
Example
A web agency uses three revenue accounts: 4000 Design services, 4010 Development services, and 4020 Hosting. Each invoice line is mapped to one of them, so the monthly report shows which service earns the most.
Frequently Asked Questions
Is there a standard chart of accounts?
There is no single required one for small businesses in most countries, though accounting software provides templates. Some countries publish standard charts that certain businesses must follow.
Can I change my chart of accounts later?
Yes, but avoid renaming or deleting accounts mid-year, since it makes comparing periods harder. Add new accounts as needed and retire old ones at year end.
Related terms
- General ledger A general ledger is the master record of every financial transaction a business makes, organized into accounts such as cash, accounts receivable, revenue, and expenses.
- Journal entry A journal entry is a record of a single financial transaction in a business's books, listing the date, the accounts affected, the debit and credit amounts, and a short description.
- Double-entry bookkeeping Double-entry bookkeeping is the accounting system in which every transaction is recorded in at least two accounts, with equal debits and credits, so the books always balance.
- Product and service catalog A product and service catalog is a saved list of the items a business sells, each with a standard description, unit price, and tax treatment, used to add line items to invoices and estimates quickly and consistently.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.