What is a Chart of Accounts?
A chart of accounts lists all of the accounts that are tracked in the general ledger. The chart of accounts depends on the accountant already having determined what the required business accounts will be. All required accounts should be defined.
Once you have defined your accounts, then you should assign each account a numeric code. Your numeric code will help you to identify the account. This number should be at least three digits (for a small business) but preferably four or more digits to allow for the possibility that you will add more accounts as your company grows.
NetMBA suggests the following numbering system for your chart of accounts:
- 1000-1999: Asset accounts
- 2000-2999: Liability accounts
- 3000-3999: Equity accounts
- 4000-4999: Revenue accounts
- 5000-5999: Cost accounts for goods sold
- 6000-6999: Expense accounts
- 7000-7999: Misc. Revenue (interest income, etc.)
- 8000-8999: Misc. Expenses (taxes, etc.)
One more note, space out your account numbers so that you may place a new account between any two accounts. For example, it would be prudent to code your accounts at least ten digits apart to allow for the addition of new accounts later. Remember, too, that the types of accounts you will have on your sample chart of accounts will differ from those of other businesses depending upon your industry, how long you have been in business, and your business structure.
What is the Account Order for a Chart of Accounts?
You should list the accounts in the same manner you would list them on a balance sheet. This means that for each category of account, you should list the most easily liquidated items, like cash and bank accounts, first and then the least easily liquidated accounts, such as fixed assets, last.
By being mindful of the order you list your accounts on the chart of accounts, you can help make your chart easily readable to accountants and tax lawyers should they need to review the list. By assigning numbers to each account, you make it easy to identify exactly what journal and general ledger entry pertains to which account.
Be sure you list your accounts in numerical order. Otherwise, things could become quite confusing. Assets should be listed first and Misc. accounts should be listed last.
Sample Chart of Accounts
Here is a sample chart of accounts. You can also find a template for a sample chart of accounts in the Media Gallery.
- 1000 Petty Cash
- 1010 Cash on Hand
- 1020 Business Regular Checking Account
- 1050 Savings Account
- 1100 Accounts Receivable
- 1400 Prepayments
- 1500 Equipment
- 1550 Vehicles
- 1600 Land
- 1700 Depreciation, Equipment
- 1800 Deposits
- 2000 Accounts Payable
- 2300 Wages Payable
- 2600 Notes Payable
- 3000 Market Shares
- 3500 Retained Earnings
- 4000 Service Earnings
- 4500 Product Earnings
- 4600 Interest Income
Cost of Goods Sold
- 5500 Product Cost
- 5600 Labor Costs
- 6000 Marketing and Advertising
- 6100 Bad Debts
- 6500 Employee Benefits