What is Chart of Accounts?

The chart of accounts is the structure behind your financial statements. Every transaction is recorded to at least one account in it, and reports are built by adding up those accounts.

The five main types

• Assets: cash, receivables, inventory, equipment
• Liabilities: payables, credit cards, loans, payroll liabilities, sales tax payable
• Equity: owner contributions, draws or distributions, retained earnings
• Revenue: sales by product line, service or channel
• Expenses: cost of goods sold and operating expenses

Accounts are usually numbered by type, for example 1000s for assets and 6000s for expenses, so related accounts group together.

Designing a useful chart

• Match expense accounts to the lines on your tax return, so year-end preparation is simple; the IRS's Instructions for Schedule C show the categories for sole proprietors
• Add revenue accounts for the distinctions you actually manage, such as product lines or channels
• Avoid hundreds of tiny accounts; use classes, locations or tags for extra detail
• Keep sales tax collected and payroll withholdings in liability accounts, never revenue or expense

Industry differences

A restaurant needs accounts for food and beverage costs and tips payable; a contractor needs job cost accounts; an online store needs platform fee and inventory accounts. See our industry pages for examples.

Changing it later

You can add accounts at any time, but merging or renaming accounts mid-year makes comparisons harder. Plan changes at the start of a fiscal year where possible. Our guide to the chart of accounts walks through a full setup, and see general ledger.

Related terms

• Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
• Liabilities: Liabilities are amounts a business owes to others, such as suppliers, lenders, employees and tax authorities.
• Retained Earnings: Retained earnings are a corporation's accumulated profits that have not been distributed to shareholders.
• General Ledger: The general ledger is the complete record of every transaction posted to every account in a business's books.

Browse more definitions in the small business glossary.