Managing your business finances can feel overwhelming—especially as things start to grow. That’s where a Chart of Accounts (COA) comes in. Think of it as the backbone of your financial system. It helps you organize, categorize, and track every dollar moving through your business.

If you’re not quite sure what a Chart of Accounts is—or how to set one up—this guide is for you.

What Is a Chart of Accounts?

A Chart of Accounts is simply a list of all the accounts your business uses to record financial transactions. These accounts help you track your income, expenses, assets, liabilities, and equity in a structured way.

Each account has a name and a unique number, which makes it easier to sort, report, and analyze your financial data.

Why Your Business Needs One

Even small businesses benefit from having a clear and well-structured Chart of Accounts. Here’s why it matters:

• Keeps your books organized
• Helps you prepare accurate financial statements
• Makes tax time easier
• Helps monitor spending and profitability
• Supports better decision-making

Main Categories in a Chart of Accounts

Most COAs are organized into five major categories. Here’s what each one includes:

1. Assets
What your business owns. These can be current or long-term.

Examples:

• Cash
• Accounts receivable
• Inventory
• Equipment

2. Liabilities
What your business owes to others.

Examples:

• Loans payable
• Credit card balances
• Accounts payable

3. Equity
Owner’s interest or investment in the business.

Examples:

• Owner’s capital
• Retained earnings

4. Income (Revenue)
Money your business earns from its operations.

Examples:

• Sales revenue
• Service income
• Rental income

5. Expenses
Costs incurred to run your business.

Examples:

• Rent
• Utilities
• Payroll
• Marketing

How to Set Up a Chart of Accounts

Here’s a step-by-step breakdown to create your own COA:

Step 1: Start With Broad Categories
Begin by listing the five main account types (Assets, Liabilities, Equity, Income, Expenses).

Step 2: Add Subcategories
Break each main category into specific accounts that make sense for your business.

For example:

Under “Expenses,” you might have: Office Supplies, Advertising, Travel, etc.

Step 3: Assign Account Numbers
Use a numbering system to organize accounts. Many businesses follow this pattern:

• 1000–1999: Assets
• 2000–2999: Liabilities
• 3000–3999: Equity
• 4000–4999: Revenue
• 5000–5999: Expenses

Step 4: Review and Update Periodically
As your business evolves, your COA should too. Review it at least once a year to make sure it still fits your needs.

Tips for Keeping It Simple

Don’t overcomplicate it. Start with only the accounts you need. You can add more later.

Be consistent. Use the same naming format and number ranges.

Use accounting software. Most modern systems come with a COA template you can customize.

Final Thoughts

A well-organized Chart of Accounts is more than just a list—it’s a powerful tool to help you understand and control your business finances.

Setting it up the right way from the beginning will save you time, reduce errors, and give you clear insights into how your business is performing.

Need help creating or reviewing your Chart of Accounts? Let’s make it easier together.