How to set up your chart of accounts, with examples for a service and a retail business

The chart of accounts overview explains what a chart is and gives a short general template. This guide is the practical follow-up: how to build your own, step by step, with two complete examples.

The basics in two minutes

The chart of accounts is the list of buckets every transaction is sorted into. There are five types. Assets, liabilities and equity make up the balance sheet; income and expenses make up the profit and loss. Cost of goods sold is a kind of expense shown just under income, so you can see gross profit. Every account belongs to exactly one type.

Set it up, step by step

Start from a template, not a blank page: the one your software creates, our free chart of accounts template, or one of the examples below.
Choose a numbering scheme. Four-digit numbers with gaps (1000, 1010, 1020) leave room to add accounts in the right place later.
Add every real account first: each bank account, savings account, credit card and loan, named so you can tell them apart ("Operating account", "Visa 4821").
Match your tax return. Put the return next to you: Schedule C for a US sole proprietor or single-member LLC, Form 1120-S or 1065 for others, or the T2125 in Canada. Make sure every expense line you will use has an account, so the year-end totals drop straight onto the form.
Split income only where it helps. One income account per kind of work or product line (services, products, shipping), not per customer.
Add the liabilities you will hold: sales tax or GST/HST payable, payroll liabilities, customer deposits, loans.
Set up equity for your structure: owner's equity and draw for a sole proprietor, an account pair per partner, or share capital and retained earnings for a corporation. See US and Canadian structures.
Cut what you will not use. Delete or make inactive the template accounts that do not apply to you.
Use sub-accounts sparingly, for example Vehicle with Fuel and Repairs under it, when you want detail and a total.
Keep a catch-all for questions: one "Uncategorized" or "Ask my accountant" account, cleared every month.
Enter opening balances on your start date, then show the list to your accountant before you post a month of transactions.

Example: a service business

A consultant, cleaning company, agency or trade business with no stock for resale:

Number	Account	Type
1000	Operating account	Bank
1010	Tax savings account	Bank
1100	Accounts receivable	Accounts receivable
1200	Undeposited funds	Other current asset
1400	Prepaid expenses	Other current asset
1500	Equipment and computers	Fixed asset
1510	Vehicle	Fixed asset
1590	Accumulated depreciation	Fixed asset
2000	Accounts payable	Accounts payable
2100	Business credit card	Credit card
2200	Sales tax payable (or GST/HST payable)	Other current liability
2300	Payroll liabilities	Other current liability
2400	Customer deposits and retainers	Other current liability
2700	Vehicle loan	Long-term liability
3000	Opening balance equity	Equity
3100	Owner's equity (contributions)	Equity
3200	Owner's draw	Equity
3900	Retained earnings	Equity
4000	Service income	Income
4100	Reimbursed expenses billed	Income
5000	Subcontractors	Cost of goods sold
5100	Job materials and supplies	Cost of goods sold
6000	Advertising and marketing	Expense
6100	Bank and card processing fees	Expense
6200	Insurance	Expense
6250	Professional fees (legal and accounting)	Expense
6300	Office supplies	Expense
6350	Software and subscriptions	Expense
6400	Wages	Expense
6410	Payroll taxes (employer share)	Expense
6500	Rent	Expense
6600	Repairs and maintenance	Expense
6700	Telephone and internet	Expense
6750	Travel	Expense
6760	Meals	Expense
6800	Vehicle expenses	Expense
6900	Utilities	Expense
6950	Depreciation	Expense
7000	Interest income	Other income
8000	Interest expense	Other expense
8900	Uncategorized, to review	Other expense

Travel and meals are separate because meals are usually only partly deductible in both countries. Subcontractors sit in cost of goods sold so the gross profit shows what each job really earns. A US business that pays contractors will also need their totals for 1099-NEC forms.

Example: a retail business

A shop that buys stock and resells it. Only the accounts that differ from the service chart are listed in full; keep the general expenses from the list above.

Number	Account	Type
1000	Operating account	Bank
1020	Cash drawer / petty cash	Bank
1050	Card processor clearing	Other current asset
1100	Accounts receivable	Accounts receivable
1200	Undeposited funds	Other current asset
1300	Inventory	Other current asset
1500	Store fixtures and equipment	Fixed asset
1520	Leasehold improvements	Fixed asset
1590	Accumulated depreciation	Fixed asset
2000	Accounts payable	Accounts payable
2100	Business credit card	Credit card
2200	Sales tax payable (or GST/HST, PST payable)	Other current liability
2250	Gift cards outstanding	Other current liability
2300	Payroll liabilities	Other current liability
4000	Merchandise sales	Income
4050	Sales returns and discounts	Income (contra)
4900	Shipping and delivery income	Income
5000	Cost of goods sold	Cost of goods sold
5100	Freight in	Cost of goods sold
5200	Inventory shrinkage and adjustments	Cost of goods sold
5300	Merchant and card fees	Expense
6550	Packaging and bags	Expense
6560	Point-of-sale fees	Expense
6570	Cash over and short	Expense

The card processor clearing account holds a day's card sales until the processor pays them out, less fees, so the deposit can be matched exactly. Gift cards sold are a liability until they are redeemed. With inventory, the purchase goes to the inventory asset and moves to cost of goods sold when the item sells. See FIFO vs average cost and how to record cash sales from a till.

US and Canadian differences

Sales tax: in the US, one sales tax payable account per state you file in (or one account with each agency tracked separately). In Canada, GST/HST collected and the input tax credits on purchases are usually netted in one GST/HST payable account, with PST or QST in their own accounts where they apply.
Payroll: US payroll liabilities are often split into federal withholding and FICA, state withholding, and unemployment. Canadian ones into the CRA remittance (income tax, CPP and EI), and any provincial items.
Tax return lines: match US accounts to Schedule C (or the 1120-S or 1065), and Canadian ones to the T2125 or the corporation's GIFI codes. The T2125 guide shows how the Canadian lines map.
Spelling and terms: chequing vs checking, cheques vs checks. Use whatever your bank and accountant use.

Keeping it tidy

Add accounts for a reason, not because a transaction is unusual. A one-off goes to the closest existing account with a clear memo.
Use classes, jobs or locations for "by" questions: profit by location, by department, by job. That detail does not belong in the chart.
Make old accounts inactive rather than deleting them, so history is kept.
Review once a year with your accountant, before the new year starts.

Checklist

Start from a template
Choose a numbering scheme with gaps
Add every bank, card and loan account
Map expense accounts to the lines of your tax return
Split income by kind of work or product line
Add sales tax, payroll and customer deposit liabilities as needed
Set up equity for your business structure
Remove or make inactive the accounts you will not use
Add an Uncategorized account and clear it monthly
Enter opening balances and review the list with your accountant

In AcboBooks

Every new AcboBooks company starts with a numbered chart: Checking and Savings, Accounts Receivable, Undeposited Funds, Inventory Asset, equipment and accumulated depreciation, Accounts Payable, Credit Card, Sales Tax Payable, Payroll Liabilities, a notes payable account, Opening Balance Equity, Owner's Equity, Owner's Draw and Retained Earnings, three income accounts, Cost of Goods Sold, a dozen common expenses and an Uncategorized - To Review account. Rename, add, make inactive or add sub-accounts in the Chart of Accounts, and use classes when you want profit by location or department. Canadian companies get an input tax credit account for GST/HST paid on purchases the first time one is recorded. The Academy lessons on the chart of accounts and opening balances show each step.

Sources and official links

Last reviewed October 26, 2026. Government pages change; if a figure here differs from the official page, the official page wins.

Frequently asked questions

How many accounts should a small business have?

Usually 30 to 60. Enough to answer the questions you ask and to fill in your tax return, and no more. You can always add an account later.

Should I number my accounts?

Numbers keep the accounts in a sensible order and make it easy to talk about them with your accountant. A common scheme is 1000s for assets, 2000s liabilities, 3000s equity, 4000s income, 5000s cost of goods sold and 6000s to 8000s expenses.

Can I change the chart of accounts later?

Yes. Renaming an account changes nothing in past transactions. Deleting one is usually blocked once it has transactions; make it inactive or merge it instead. Big changes are best made at the start of a year.

Should each customer or job have its own income account?

No. Track customers, jobs, locations or departments with customer records, jobs or classes, and keep the income accounts for kinds of income. The chart stays short and the detail is still in the reports.

Is there a standard chart of accounts I must use?

Not for most small businesses in the US or Canada. Some industries, nonprofits and lenders expect particular formats. Matching your accounts to the lines of your tax return is the most useful standard to follow.

This article is general information, not tax, legal or accounting advice. Rules and dates change; check the official source or ask your accountant before acting.