What Should You Include on Your Chart of Accounts?
Your chart of accounts (COA) is a list of account numbers and names that are relevant to your small business. It helps keep your financial information organized and is the first step of establishing your accounting system. Your COA enables you make more informed financial decisions by showing you a clear picture of where you’re earning money and how you’re spending it.
Setting up your COA is not as complicated or daunting as it may sound. For each account, assign a number and a name that makes sense to you and your accountant. You’ll use those accounts when recording transactions in your general ledger.
A chart of accounts is typically broken into five
Your asset accounts track what your company owns, including
cash and inventory. Usually, asset accounts are assigned numbers that start
with 1000. For example, your cash account may be 1000, and accounts receivable
may be 1010.
The first accounts listed in your assets category should be
current assets, which are assets that can be converted to cash quickly. Current
After you’ve assigned numbers to your current assets, assign
numbers to your fixed assets. Fixed assets are purchased for long-term use and
are not easily converted into cash. Fixed assets include:
Your liability accounts keep track of anything your company
owes, including debt obligations. Typically, liability account numbers range
Start your list with current liabilities, which are debts
due within one year. Current liabilities include:
payroll tax liability
sales tax liability
After you’ve added your current liabilities, move on to your
long-term liabilities, which are not due within the next 12 months. Long-term
deferred income taxes
3. Owner’s Equity
Owner’s equity accounts track your investment in your small
business. These accounts typically start at 3000. You may also have an account
for retained earnings, which is the net income your business has after paying
out dividends to shareholders and is typically invested back into the company.
Revenue accounts help you track your company’s sources of
income and are typically numbered in the 4000-range. Revenue accounts include:
Expenses track what your small business pays. Expense
accounts typically start at 5000. Some of your expense accounts will be related
to your liability accounts, so you can track how much of your debt you’ve paid
off. Expense accounts include:
marketing and advertising
travel and meals
salaries and wages
Sample Chart of Accounts
After you’ve assigned numbers and names to all the accounts
your company needs or may need in the future, your COA will look similar to