What Is A Chart Of Accounts? Setup, And Examples

When it comes to business finance, structure isn’t optional. It’s the foundation that keeps your records clean, your reports accurate, and your decisions data-driven. At the core of that structure is the chart of accounts — the main pole of bookkeeping.

Whether you’re a founder building your books from scratch or a CFO cleaning up legacy accounting, knowing how to design and use a chart of accounts will make your life easier. And your books? Much cleaner.

What Is a Chart of Accounts?

The chart of accounts (COA) is a master list of every financial account your business uses to organize transactions. It’s like the table of contents for your accounting system.

Each account in the chart is a specific bucket that holds similar types of transactions. Whether you’re logging revenue from a client or tracking software expenses, the COA tells your accounting system exactly where that transaction belongs.

So, What Does It Include?

The COA organizes accounts into five core categories:

1. Assets: What your business owns (e.g., bank accounts, equipment, receivables)
2. Liabilities: What your business owes (e.g., loans, payables)
3. Equity: What belongs to the owner/shareholders
4. Revenue: What your business earns
5. Expenses: What your business spends to operate

These five types form the backbone of any accounting chart of accounts sample you’ll come across, regardless of industry.

Why Does the Chart of Accounts Matter?

Let’s get something straight: this isn’t a back-office checklist item. A clean, well-organized chart of accounts is the reason your financial reports make sense. Here’s what it does:

• Simplifies bookkeeping: No more guesswork when entering transactions.
• Supports tax readiness: Well-organized accounts make tax filing smoother and audit-proof.
• Enables smart reporting: Your P&L, balance sheet, and cash flow statements are only as accurate as the COA beneath them.
• Scales with your business: You can’t grow on messy data. A scalable COA keeps you agile.

Tip: The more tailored your chart of accounts is to your business model, the better your reporting gets. Generic templates are a starting point, not the finish line.

How to Set Up a Chart of Accounts? (That Works)

Creating a COA isn’t about listing every imaginable expense. It’s about clarity on “what is chart accounts?”. Here’s how to structure it with intention:

1. Start with the Five Core Categories

Create a section for each of the five core account types. Every other account will fall under one of these.

2. Use a Logical Numbering System

Most COAs use a numbering scheme like this:

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

These ranges help with sorting and scalability.

3. Add Subcategories Based on Real-World Use

Let’s say you’re a digital marketing agency. Your expense accounts might include:

• 5100: Software Subscriptions
• 5200: Advertising Spend
• 5300: Freelance Contractors
• 5400: Office Supplies

Meanwhile, your revenue accounts could include:

• 4100: SEO Services Revenue
• 4200: Paid Media Management Revenue

Tip: Be specific. “Miscellaneous Expense” is not your friend. Granularity helps you budget, cut waste, and analyze performance.

4. Review Annually (At Least)

Your business changes. Your COA should evolve too. Add accounts as needed, retire unused ones, and restructure when major shifts happen.

Example of Chart of Accounts (Service-Based Business)

Here’s a simplified accounting chart of accounts sample for a service business:

Depending on your business, you may need accounts for inventory, payroll, taxes payable, or cost of goods sold (COGS). This is a framework, not a limit.

Mistakes to Avoid

• Too many accounts: Don’t add every tiny line item as a separate account. It clutters reporting.
• Vague names: “Other income” and “Misc expense” don’t tell you anything useful.
• Inconsistency: Random naming and numbering schemes make it harder for you or your accountant to maintain bookkeeping.

Orbit Accountants believes in helping clients clean up bloated COAs all the time. Whether you’re starting from scratch or just need a smarter structure, we can help.

Conclusion

Your chart of accounts isn’t just bookkeeping. It’s a strategy. When it’s built right, it becomes the backbone of your financial visibility. Clean records. Confident decisions. Better outcomes.

Orbit Accountants helps you sort your books from the ground up—starting with a smart chart of accounts. Clean books, clear decisions. Ready to begin?

Get in touch with us today and let’s build your financial foundation the right way.

Frequently Asked Questions:

What are the five main types in the chart of accounts?

The five main categories are Assets, Liabilities, Equity, Revenue, and Expenses. Together, they represent everything a business owns, owes, earns, and spends.

What is the basic purpose of the chart of accounts?

The chart of accounts provides a structured framework to organize all financial transactions, making reporting, budgeting, and tax compliance easier and more accurate.

What is the difference between a general ledger and a chart of accounts?

The chart of accounts is a categorized list of all account titles, while the general ledger records the actual transactions within those accounts. Think of the COA as the index, and the general ledger as the book.

Why does a company need a chart of accounts?

A well-maintained chart of accounts keeps financial data organized, improves clarity in reporting, and ensures the company is audit-ready and compliant with financial standards.

What is another name for the chart of accounts?

It’s sometimes referred to as an accounting framework or general ledger structure, but “chart of accounts” remains the most widely used term across industries.