Quick answer
A chart of accounts is the list of categories your business uses to record money. A simple, consistent chart makes reports clear and tax time easier.
1What it is
The chart of accounts is the list of categories every transaction goes into: income, expenses, assets, liabilities and equity. Your reports are built from it, so a messy chart means confusing reports.
2The five main groups
- Assets: what you own, such as bank accounts and equipment
- Liabilities: what you owe, such as loans and credit cards
- Equity: the owner's stake in the business
- Income: money earned from customers
- Expenses: the costs of running the business
3How to organize it
- Use clear, plain names
- Group similar accounts together
- Keep it as short as you can while still useful
- Separate cost of goods sold from operating expenses if you sell products
- Create income accounts for each main service or product line
Tip
More accounts is not better. If two accounts never help you make a decision, combine them.
4Common mistakes
- Using a catch-all account for everything
- Creating duplicates with slightly different names
- Recording loan payments entirely as expenses
- Never reviewing the chart as the business changes
5Setting it up properly
The best time to fix the chart is early. We set up charts of accounts to fit your business and your reports, so categories stay consistent month after month.
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