Accounting Resource
What Is a Chart of Accounts?
A chart of accounts is the foundation of your bookkeeping system. It groups every transaction into assets, liabilities, equity, income, and expenses so reporting stays consistent.
Why It Matters
Without a clear chart, your reports become inconsistent month to month.
A good structure makes trial balance, profit and loss, and tax reporting faster and more reliable.
Common Account Groups
Assets: cash, bank, receivables, inventory.
Liabilities: payables, loans, taxes payable.
Equity: owner capital, retained earnings.
Income: sales, service income, other income.
Expenses: rent, salaries, utilities, software, bank charges.
Step-by-Step Guidance
- Start with standard account groups.
- Assign simple account codes (for example 1000 assets, 2000 liabilities).
- Create only accounts you actually use.
- Review and clean up duplicate accounts every quarter.
Small-Business Use Case
A small agency created one clear income account for service revenue and separate expense accounts for software, ads, and salaries. Their monthly P&L became easier to review and budgeting improved.
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FAQ
How many accounts should a small business have?
Start lean. Most small businesses can begin with 20-60 active accounts.
Can I change account codes later?
Yes, but avoid frequent changes because it can complicate historical comparisons.