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Chart of Accounts

The Chart of Accounts (COA) is the foundation of your bookkeeping system—a complete listing of all accounts used to record transactions.

What is a Chart of Accounts?​

The COA organizes all your financial accounts into categories, providing a structure for recording and reporting business transactions.

Purpose:

  • Organize financial data systematically
  • Ensure consistency in recording transactions
  • Generate accurate financial reports
  • Facilitate analysis and decision-making

Account Structure​

Account Numbering System​

Most businesses use a numbering system to organize accounts:

1000-1999: Assets
2000-2999: Liabilities
3000-3999: Equity
4000-4999: Revenue
5000-5999: Cost of Goods Sold
6000-6999: Expenses

Benefits of numbering:

  • Logical organization
  • Easy to add accounts
  • Clear categorization
  • Software compatibility

Standard Account Categories​

1. Assets (1000-1999)​

Current Assets (1000-1299)

  • 1000: Cash - Operating Account
  • 1050: Cash - Savings Account
  • 1100: Accounts Receivable
  • 1150: Allowance for Doubtful Accounts
  • 1200: Inventory
  • 1250: Prepaid Expenses

Fixed Assets (1300-1599)

  • 1300: Land
  • 1400: Buildings
  • 1450: Accumulated Depreciation - Buildings
  • 1500: Equipment
  • 1550: Accumulated Depreciation - Equipment
  • 1580: Vehicles
  • 1585: Accumulated Depreciation - Vehicles

2. Liabilities (2000-2999)​

Current Liabilities (2000-2299)

  • 2000: Accounts Payable
  • 2100: Credit Cards Payable
  • 2200: Sales Tax Payable
  • 2250: Payroll Liabilities
  • 2270: Accrued Expenses

Long-Term Liabilities (2300-2999)

  • 2300: Notes Payable
  • 2400: Loans Payable
  • 2500: Mortgage Payable

3. Equity (3000-3999)​

  • 3000: Owner's Capital
  • 3100: Owner's Draws
  • 3900: Retained Earnings
  • 3950: Current Year Earnings

4. Revenue (4000-4999)​

  • 4000: Sales Revenue - Product A
  • 4100: Sales Revenue - Product B
  • 4200: Service Revenue
  • 4800: Other Income
  • 4900: Interest Income

5. Cost of Goods Sold (5000-5999)​

  • 5000: Cost of Goods Sold - Materials
  • 5100: Cost of Goods Sold - Labor
  • 5200: Freight and Shipping
  • 5300: Inventory Shrinkage

6. Expenses (6000-6999)​

Operating Expenses (6000-6799)

  • 6000: Advertising and Marketing
  • 6100: Bank Fees
  • 6200: Insurance
  • 6300: Office Supplies
  • 6400: Rent
  • 6500: Repairs and Maintenance
  • 6600: Salaries and Wages
  • 6700: Utilities
  • 6800: Professional Fees

Other Expenses (6800-6999)

  • 6900: Depreciation Expense
  • 6950: Interest Expense

Creating Your Chart of Accounts​

Step 1: Start with a Template​

Most accounting software includes industry-specific templates:

  • Retail
  • Professional services
  • Manufacturing
  • Restaurants
  • Construction

Step 2: Customize for Your Business​

Add accounts specific to your operations:

  • Different product lines
  • Multiple locations
  • Specialized services
  • Unique expense categories

Step 3: Keep It Simple​

Don't:

  • Create too many accounts initially
  • Over-categorize expenses
  • Duplicate account purposes

Do:

  • Start with basics, add as needed
  • Group similar items
  • Use clear, descriptive names
  • Leave room for growth in numbering

Step 4: Maintain Consistency​

  • Use same names across periods
  • Don't delete accounts with history
  • Mark inactive accounts instead
  • Document your COA structure

Best Practices​

Account Naming​

Good names:

  • Office Supplies
  • Advertising - Digital
  • Payroll - Salaries
  • Vehicle Expenses - Fuel

Bad names:

  • Misc
  • Other
  • Expenses
  • Stuff

Level of Detail​

Balance between too detailed and too broad:

Too Detailed:

Office Supplies - Pens
Office Supplies - Paper
Office Supplies - Staples
Office Supplies - Folders

Too Broad:

Office Expenses (includes supplies, equipment, and services)

Just Right:

Office Supplies
Office Equipment
Office Services

Account Organization Tips​

  1. Group related accounts together in numbering
  2. Leave gaps in numbering for future additions
  3. Use sub-accounts for detailed tracking
  4. Align with tax forms for easier reporting
  5. Review annually and update as needed

Industry-Specific Examples​

Retail Store COA Highlights​

4000: Sales - Electronics
4100: Sales - Accessories
5000: COGS - Electronics
5100: COGS - Accessories
6250: Merchant Fees
6350: Store Rent

Consulting Firm COA Highlights​

4000: Consulting Revenue
4100: Training Revenue
6200: Subcontractor Costs
6450: Professional Development
6550: Client Entertainment

Restaurant COA Highlights​

4000: Food Sales
4100: Beverage Sales
5000: Food Costs
5100: Beverage Costs
6400: Kitchen Equipment Rental
6700: Server Wages

Common Mistakes to Avoid​

MistakeSolution
Too many accountsConsolidate similar accounts
Vague account namesBe specific and descriptive
Deleting used accountsMark as inactive instead
No sub-account structureUse parent/child relationships
Inconsistent categorizationCreate and follow guidelines

Next Steps​

With your Chart of Accounts established, learn about recording transactions properly using these accounts.