Chart of Accounts

What is a chart of accounts?

A chart of accounts is an organized list of all the categories your business uses to track financial activity. Think of it as a filing system for money. Every transaction gets assigned to an account: revenue goes to income accounts, bills go to expense accounts, and so on. This organization makes it possible to generate meaningful financial reports.

Your chart of accounts is customized to your business—a plumber has different categories than a graphic designer.

Standard account types

Charts of accounts typically include these main categories:

• Assets — What you own: cash, equipment, accounts receivable
• Liabilities — What you owe: loans, accounts payable, credit cards
• Equity — Owner's stake: capital, retained earnings
• Income — Money earned: service revenue, product sales
• Expenses — Money spent: materials, labor, rent, utilities

Setting up your chart of accounts

Keep it simple but complete. Include accounts for your major expense categories (makes tax time easier) but don't create so many that categorizing becomes a chore. Most accounting software comes with a standard chart of accounts you can customize.