The Chart of Accounts is one of those unknown parts of your accounting software we don’t even think about. What most entrepreneurs don’t realize is that the chart of accounts represents the foundation of your accounting process, if you don’t set up the chart of accounts correctly, your bookkeeping and financial records will have major negative impacts. In this ultimate guide, not only do we explore examples of a common chart of accounts but also we discuss best practices on how to properly set up your chart of accounts.
What is the Chart of Accounts?
As we discussed in our article: Bookkeeping Services for Small Business, the chart of accounts is a listing of all accounts tracked by your business in your accounting software general ledger.
Why is The Chart of Accounts important?
Think about the chart of accounts as the foundation of a building, in the chart of accounts you decide how your transactions are categorized and reported in your financial statements.
While the chart of accounts can be similar across businesses in similar industries, you should create a chart of accounts that is unique to your individual business. You should ask yourself, what do I want to track in my business and how do I want to organize this information? For example, we often suggest our clients break down their sales by revenue stream rather than just lumping all sales in a Revenue category. By doing so, you can easily understand what products or services are generating the most revenue in your business. Be careful not to overly complicate your chart of accounts. If you create too many categories in your chart of account, you can make your entire financial reports difficult to read and analyze. Therefore, you need to find the right balance between, creating a chart of accounts that organizes transactions in broad categories and provides the level of detail you need in order to make informed business decisions.
Chart of Accounts examples:
In virtually all accounting software, chart of accounts are grouped in a specific numeric range that identifies the type of account and where is reported in the financial statements. Below is how Xero usually groups their chart of accounts, QuickBooks uses a similar methodology:
| Numeric Range | Account Type | Financial Report |
| 100 – 199 | Assets | Balance Sheet |
| 200 – 299 | Liabilities | Balance Sheet |
| 300 – 399 | Equity | Balance Sheet |
| 400 – 499 | Revenue | Profit & Loss |
| 500 – 599 | Cost of Goods Sold | Profit & Loss |
| 600 – 699 | Operating Expenses | Profit & Loss |
| 700 – 799 | Taxes Paid | Profit & Loss |
| 800 – 899 | Other Expenses | Profit & Loss |
Below is an example of a typical chart of account:
| *Code | *Name | *Type |
| 101 | Checking Account | Bank |
| 102 | Savings Account | Bank |
| 120 | Accounts Receivable | Accounts Receivable |
| 130 | Prepayments | Current Asset |
| 140 | Inventory | Inventory |
| 150 | Office Equipment | Fixed Asset |
| 151 | Less Accumulated Depreciation on Office Equipment | Fixed Asset |
| 160 | Computer Equipment | Fixed Asset |
| 161 | Less Accumulated Depreciation on Computer Equipment | Fixed Asset |
| 200 | Accounts Payable | Accounts Payable |
| 205 | Accruals | Current Liability |
| 210 | Unpaid Expense Claims | Unpaid Expense Claims |
| 215 | Wages Payable | Wages Payable |
| 216 | Wages Payable – Payroll | Current Liability |
| 220 | Sales Tax | Sales Tax |
| 230 | Employee Tax Payable | Current Liability |
| 231 | Federal Tax withholding | Current Liability |
| 232 | State Tax withholding | Current Liability |
| 233 | Employee Benefits payable | Current Liability |
| 234 | Employee Deductions payable | Current Liability |
| 235 | PTO payable | Current Liability |
| 240 | Income Tax Payable | Current Liability |
| 250 | Suspense | Current Liability |
| 255 | Historical Adjustment | Historical Adjustment |
| 260 | Rounding | Rounding |
| 265 | Tracking Transfers | Tracking |
| 290 | Loan | Non-current Liability |
| 300 | Owners Contribution | Equity |
| 310 | Owners Draw | Equity |
| 320 | Retained Earnings | Retained Earnings |
| 330 | Common Stock | Equity |
| 400 | Sales | Revenue |
| 460 | Other Revenue | Revenue |
| 470 | Interest Income | Revenue |
| 480 | Refunds | Revenue |
| 500 | Cost of Goods Sold | Direct Costs |
| 600 | Advertising | Expense |
| 604 | Bank Service Charges | Expense |
| 608 | Janitorial Expenses | Expense |
| 612 | Consulting & Accounting | Expense |
| 620 | Entertainment | Expense |
| 624 | Postage & Delivery | Expense |
| 628 | General Expenses | Expense |
| 632 | Insurance | Expense |
| 640 | Legal Expenses | Expense |
| 644 | Utilities | Expense |
| 648 | Automobile Expenses | Expense |
| 652 | Office Expenses | Expense |
| 656 | Printing & Stationery | Expense |
| 660 | Rent | Expense |
| 664 | Repairs and Maintenance | Expense |
| 668 | Wages and Salaries | Expense |
| 669 | Wages & Salaries – California | Expense |
| 672 | Payroll Tax Expense | Expense |
| 676 | Dues & Subscriptions | Expense |
| 680 | Telephone & Internet | Expense |
| 684 | Travel | Expense |
| 690 | Bad Debts | Expense |
| 700 | Depreciation | Expense |
| 710 | Income Tax Expense | Expense |
| 720 | Federal Tax expense | Expense |
| 721 | State Tax expense | Expense |
| 722 | Employee Benefits expense | Expense |
| 723 | PTO expense | Expense |
| 800 | Interest Expense | Expense |
| 810 | Bank Revaluations | Bank Revaluations |
| 815 | Unrealized Currency Gains | Unrealized Currency Gains |
| 820 | Realized Currency Gains | Realized Currency Gains |
| 835 | Revenue Received in Advance | Current Liability |
| 855 | Clearing Account | Current Liability |
Chart of Accounts Contra Accounts:
You will notice in the example above that account code 480 Refunds is listed as a revenue account, but you might ask yourself: isn’t refunds a reduction of sales? Yes, these are called contra accounts in accounting jargon. They are intended to be a direct reduction of specific accounts like revenue, why? Because by being placed in the revenue category you will be able to see your overall revenue and your refunds all on the same section of the Profit & Loss Statement.
