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What Is a Chart of Accounts?

  • Writer: Miranda Kishel
    Miranda Kishel
  • Aug 29
  • 2 min read
Chart of Accounts

A Chart of Accounts (COA) is simply the master list of all the accounts a business uses to record financial transactions. Think of it as the “filing cabinet” for your bookkeeping system—each account is like a folder where specific types of income, expenses, assets, or liabilities are tracked.


In other words, if bookkeeping is the process of recording transactions, the Chart of Accounts is the roadmap that tells you where each transaction belongs.


2. Why Chart of Accounts Matters to Small Business Owners


For small business owners, a well-organized Chart of Accounts is critical. It:


  • Keeps financial data consistent – every dollar has a home, so reports stay accurate.

  • Supports decision-making – clear categories help you understand where money is coming from and going.

  • Simplifies taxes and compliance – transactions are categorized properly, making tax prep smoother.

  • Enables growth – a strong bookkeeping foundation makes it easier to apply for loans, attract investors, and measure profitability.

Without a solid COA, bookkeeping can become messy and unreliable, leaving you with numbers you can’t trust.


3. Common Examples or Use Cases


A Chart of Accounts usually includes five major categories:


  1. Assets – Cash, accounts receivable, equipment, inventory.

  2. Liabilities – Loans, accounts payable, credit cards.

  3. Equity – Owner’s capital, retained earnings.

  4. Income (Revenue) – Sales, service income, interest earned.

  5. Expenses – Rent, utilities, payroll, marketing, supplies.

For example:


  • A coffee shop might track “Coffee Bean Inventory” under Assets, “Sales – Beverages” under Income, and “Barista Wages” under Expenses.

  • A consulting firm may have “Client Retainers” under Income and “Software Subscriptions” under Expenses.

4. Related Terms or Misconceptions


  • General Ledger – Often confused with the Chart of Accounts, the general ledger is where transactions are actually recorded, while the COA is just the list of categories.

  • Bookkeeping Basics – The COA is one of the first building blocks of bookkeeping, alongside bank reconciliations and financial statements.

  • Misconception: One-Size-Fits-All – A COA should be customized to your business. A construction company will have very different accounts than a law firm.

5. Tips for Applying This Concept in a Real Business


  • Keep it simple – Don’t create unnecessary accounts. Stick to the main categories and add detail only where it matters.

  • Be consistent – Always record similar transactions in the same account.

  • Review annually – As your business grows, revisit your Chart of Accounts to ensure it still fits.

  • Use accounting software – Most platforms (like QuickBooks or Xero) come with a default COA you can customize.

  • Get expert help – A bookkeeper or accountant can help you set up a system that works long-term.

Ready to take control of your bookkeeping foundation? Learn more about our Bookkeeping & Payroll services.

Final Thought


Your Chart of Accounts is more than just a list—it’s the framework that keeps your financial data organized and actionable. When set up correctly, it makes every part of financial management easier, from daily bookkeeping to year-end tax filings.


External Resource: For a deeper dive, see Investopedia’s definition of Chart of Accounts, which explains the structure and purpose in more detail.

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