A chart of accounts for a small business, with a starting template

What the chart of accounts is

The chart of accounts is the list of categories every transaction is sorted into: each bank account, what you own, what you owe, each kind of income and each kind of expense. Your profit and loss and balance sheet are simply those accounts added up.

A good chart answers the questions you actually ask ("how much did we spend on fuel?") without so many accounts that nobody knows where to post things.

The five types

• Assets: what the business owns. Bank accounts, money customers owe you (accounts receivable), inventory, equipment and vehicles.
• Liabilities: what the business owes. Credit cards, bills not yet paid (accounts payable), sales tax and payroll taxes collected but not yet paid, loans.
• Equity: the owners' stake. Money put in, money taken out, and the profit kept in the business over the years.
• Income: what you earn from customers.
• Expenses: what it costs to run the business, including cost of goods sold for anything you resell.

Assets, liabilities and equity make up the balance sheet. Income and expenses make up the profit and loss.

A starting template

Most small businesses need 30 to 60 accounts. Start lean; adding an account later is easy, untangling a cluttered chart is not.

Assets

• Operating bank account; savings account
• Undeposited funds (payments received, not yet banked)
• Accounts receivable
• Inventory (if you resell goods)
• Prepaid expenses
• Equipment; vehicles; accumulated depreciation

Liabilities

• Accounts payable
• Credit card (one per card)
• Sales tax payable (US) or GST/HST payable (Canada)
• Payroll liabilities
• Customer deposits
• Loans payable

Equity

• Owner's capital (or share capital)
• Owner's draws (or dividends)
• Retained earnings

Income

• Sales or service income (split only if you would act on the split: for example, installation versus maintenance)
• Shipping and delivery income
• Discounts given (as a negative income account)
• Interest income

Cost of goods sold

• Cost of goods sold; materials; subcontractors

Expenses

• Advertising and marketing
• Bank and card processing fees
• Insurance
• Professional fees (accounting, legal)
• Office supplies and software
• Rent; utilities; telephone and internet
• Repairs and maintenance
• Vehicle: fuel, repairs, mileage
• Travel; meals
• Wages; payroll taxes; employee benefits
• Depreciation

Your accountant may prefer names that line up with the tax return: Schedule C or Form 1120 lines in the US, the T2125 or GIFI codes in Canada. Ask once at setup and it saves a mapping exercise every year.

Rules that keep it useful

• One account per real bank account and card. Each must reconcile to its own statement.
• No "miscellaneous" dumping ground. If something lands there twice, it deserves its own account.
• Don't delete accounts with history; make them inactive.
• Numbers are optional. They help if your accountant uses them; otherwise clear names are enough.

Accounts or classes?

If you want the same expense split by location, department, job or fund, do not create "Rent – Store 1" and "Rent – Store 2". Keep one Rent account and tag each transaction with a class for the store. The profit and loss by class then splits every account at once, and the chart stays short.