How to Structure Your Chart of Accounts
Think of your chart of accounts like the blueprint for your business’s finances. If it’s clear, well-organized, and tailored to how you operate, everything from budgeting to tax prep gets easier. If it’s messy or overly generic? You’re left sorting through confusing reports and missed insights.
Whether you run a growing construction firm, a busy medical practice, or a trucking company with a fleet on the road, your chart of accounts should reflect the way you do business, not just what your accounting software defaults to.
In this guide, we’ll walk you through how to structure your chart of accounts in a way that works for your business, supports smarter decision-making, and leaves room for growth.
What Is a Chart of Accounts?
A chart of accounts is a categorized list of all the accounts used to record financial transactions in the company's general ledger or accounting software. These accounts are grouped into five primary categories:
Asset accounts. What your company owns, like cash, prepaid expenses, accounts receivable, fixed assets, accumulated depreciation, and intangible assets.
Liability accounts. What your business owes, like accounts payable, accrued payroll taxes, and notes payable.
Equity accounts. The owner’s or shareholder's interest in the business, including paid-in capital, common stock, and retained earnings.
Revenue accounts. Sales revenue and other income from business operations.
Expense accounts. Costs of running the business, like cost of goods sold, administrative expenses, wages expense, rent expense, and other operating expenses.
Other income and expenses. Other non-operating revenues and expenses, like gains from sales of property and interest income.
Each account is assigned a number, typically in a logical sequence (e.g., 1000s for assets, 2000s for liabilities, etc.). This numbering helps keep your chart of accounts organized.
Step 1: Use a Numbering System That Supports Growth
Here’s a common coding system to follow:
Assets: 1000–1999
Liabilities: 2000–2999
Equity: 3000–3999
Revenue: 4000–4999
Cost of Goods Sold (COGS): 5000–5999
Expenses: 6000–7999
Other Income/Expense: 8000–8999
It's helpful to leave space between account numbers so you can add sub-accounts as your business grows.
For example, your checking account might have account number 1001. Instead of assigning prepaid expenses account number 1002, you might make it 1050 or 1100. This gives you room to add another cash account if you open a business savings account or have a merchant account for accepting debit and credit card payments.
Step 2: Tailor Your Chart of Accounts to Your Business
A generic chart of accounts might work for startups, but established businesses need a setup that works for their unique business operations.
Tailor your chart of accounts to reflect the specific needs and structure of your organization. For example, you may want to create sub-accounts for different advertising expenses to track the cost and ROI of each medium (print, direct mail, social media ads, etc.). You might have several revenue accounts to track different products or service lines. Or you might give a specific ending digit to a second location. For example, all expenses belonging to your south location could end in the number four.
Step 3: Keep It Consistent and Lean
While customization is important, avoid overcomplicating your chart of accounts. Aim for clarity. Too many accounts lead to inconsistent coding, which affects financial reporting and slows down your bookkeeper.
Plus, when your Profit and Loss Statement is several pages long, it makes it tough to spot trends.
Step 4: Use Classes for More Granularity
Most accounting software allows you to classify expenses by vendor, client, project, location, etc. So if you want to track specific costs or revenue streams without cluttering the main COA, use classes instead of creating separate accounts for different vendors, projects, clients, or locations.
Step 5: Review and Revise Annually
Your chart of accounts isn't set in stone. As your business evolves and you offer new services, create new revenue streams, and take on additional costs, you'll likely need to add new accounts.
While you can add new accounts or sub-accounts at any time, don't archive or delete accounts in the middle of the year. If you do, you could wind up with errors in your financial statements.
At least once a year, revisit your chart of accounts to make sure it's still working for you, the account names make sense, and the company's financial accounts align with your reporting needs.
Need Help Structuring Your Chart of Accounts?
A well-structured chart of accounts helps you prepare financial reports and file taxes, understand profitability by job, segment, or location, control costs, and monitor your company's financial health.
But setting it up the right way takes strategic thinking and experience.
At Slate, we help business owners like you align their accounting systems with their operations so your financials actually make sense. Whether you're scaling a construction firm or streamlining a medical practice, we’ll make sure your chart of accounts supports smarter decision-making, not just data entry.
Schedule a call with Slate today to get started with a smarter, customized accounting setup.