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 RangeAccount TypeFinancial Report
100 – 199AssetsBalance Sheet
200 – 299LiabilitiesBalance Sheet
300 – 399EquityBalance Sheet
400 – 499RevenueProfit & Loss
500 – 599Cost of Goods SoldProfit & Loss
600 – 699Operating ExpensesProfit & Loss
700 – 799Taxes PaidProfit & Loss
800 – 899Other ExpensesProfit & Loss

 

Below is an example of a typical chart of account:

*Code*Name*Type
101Checking AccountBank
102Savings AccountBank
120Accounts ReceivableAccounts Receivable
130PrepaymentsCurrent Asset
140InventoryInventory
150Office EquipmentFixed Asset
151Less Accumulated Depreciation on Office EquipmentFixed Asset
160Computer EquipmentFixed Asset
161Less Accumulated Depreciation on Computer EquipmentFixed Asset
200Accounts PayableAccounts Payable
205AccrualsCurrent Liability
210Unpaid Expense ClaimsUnpaid Expense Claims
215Wages PayableWages Payable
216Wages Payable – PayrollCurrent Liability
220Sales TaxSales Tax
230Employee Tax PayableCurrent Liability
231Federal Tax withholdingCurrent Liability
232State Tax withholdingCurrent Liability
233Employee Benefits payableCurrent Liability
234Employee Deductions payableCurrent Liability
235PTO payableCurrent Liability
240Income Tax PayableCurrent Liability
250SuspenseCurrent Liability
255Historical AdjustmentHistorical Adjustment
260RoundingRounding
265Tracking TransfersTracking
290LoanNon-current Liability
300Owners ContributionEquity
310Owners DrawEquity
320Retained EarningsRetained Earnings
330Common StockEquity
400SalesRevenue
460Other RevenueRevenue
470Interest IncomeRevenue
480RefundsRevenue
500Cost of Goods SoldDirect Costs
600AdvertisingExpense
604Bank Service ChargesExpense
608Janitorial ExpensesExpense
612Consulting & AccountingExpense
620EntertainmentExpense
624Postage & DeliveryExpense
628General ExpensesExpense
632InsuranceExpense
640Legal ExpensesExpense
644UtilitiesExpense
648Automobile ExpensesExpense
652Office ExpensesExpense
656Printing & StationeryExpense
660RentExpense
664Repairs and MaintenanceExpense
668Wages and SalariesExpense
669Wages & Salaries – CaliforniaExpense
672Payroll Tax ExpenseExpense
676Dues & SubscriptionsExpense
680Telephone & InternetExpense
684TravelExpense
690Bad DebtsExpense
700DepreciationExpense
710Income Tax ExpenseExpense
720Federal Tax expenseExpense
721State Tax expenseExpense
722Employee Benefits expenseExpense
723PTO expenseExpense
800Interest ExpenseExpense
810Bank RevaluationsBank Revaluations
815Unrealized Currency GainsUnrealized Currency Gains
820Realized Currency GainsRealized Currency Gains
835Revenue Received in AdvanceCurrent Liability
855Clearing AccountCurrent 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.