A chart of accounts for small business is the master list of categories your bookkeeping uses to sort every dollar that comes in and goes out. Every transaction gets recorded in one of these categories. With a clear chart, you can see where your money comes from, where it goes, and what your business owns and owes.
This guide explains what a chart of accounts is, the five main account types, how to number your accounts, and how to set up a simple chart step by step. It also includes a sample chart you can adapt to your own business.
What Is a Chart of Accounts for Small Business?
A chart of accounts is a list of all the accounts used to record your business’s financial position and activity in the general ledger. In plain terms, each account is a category, such as “Business Checking,” “Rent,” or “Service Revenue.”
The chart lists account names and numbers, but it does not show transaction amounts or balances. Those live in the general ledger. For that reason, the chart works like a table of contents, while the ledger holds the actual entries.
The U.S. Department of Justice publishes a U.S. Department of Justice guide to the general ledger and chart of accounts for grant recipients that explains the same basic idea.
Chart of Accounts vs. General Ledger
The general ledger is the record of your financial transactions, and the chart of accounts is the list of accounts those transactions are recorded in. As a result, you need the chart first, because every transaction has to be assigned to an account.
Why a Chart of Accounts for Small Business Matters
A well-organized chart helps in several practical ways:
- Consistency: Similar transactions always go to the same account.
- Better reports: Your financial statements are built from your accounts, so clear accounts lead to clearer reports.
- Easier review: You can quickly see which categories are growing and which are shrinking.
- Smoother handoffs: A bookkeeper or accountant can understand your records faster when the structure is logical.
For example, your balance sheet and your profit and loss statement both pull their line items from your chart of accounts.
The Five Main Account Types
Most charts of accounts group accounts into five categories.
Assets
Assets are resources your business owns that will provide a future benefit. Examples include cash in the bank, money customers owe you, and equipment.
Liabilities
Liabilities are obligations your business has taken on but has not yet paid. Examples include unpaid vendor bills, credit card balances, and loans.
Equity
Equity is what remains for the owners after liabilities are subtracted from assets. It reflects the owners’ stake in the business.
Revenue
Revenue is the money coming into the business from selling products or services.
Expenses
Expenses are the costs of running the business, such as rent, supplies, software, and wages. If you want help tracking them day to day, see our guide to small business expenses.
Assets, liabilities, and equity appear on the balance sheet. Revenue and expenses appear on the income statement, also called the profit and loss statement.
How to Number Accounts in a Chart of Accounts for Small Business
Account numbers give each account a unique identifier and keep similar accounts together. One simple example of a numbering scheme looks like this:
- 1000s: Assets
- 2000s: Liabilities
- 3000s: Equity
- 4000s: Revenue
- 5000s and up: Expenses
However, there is no single required format. Some organizations use five-digit numbers, and some use different ranges, so choose a system that fits your business and stay consistent.
It also helps to leave gaps between numbers. For example, if your cash accounts are 1000 and 1010, you can add 1005 or 1020 later without reorganizing everything.
How to Set Up a Chart of Accounts for Small Business
You do not need a complicated system. Follow these steps.
Step 1: Start with the Five Categories
Create sections for assets, liabilities, equity, revenue, and expenses.
Step 2: List the Accounts You Actually Use
Add your bank accounts, credit cards, loans, income sources, and the types of expenses you regularly pay. If you use accounting software, check whether it starts you with a default chart that you can edit.
Step 3: Assign Account Numbers
Number each account within its category, leaving gaps for future additions.
Step 4: Use Clear, Consistent Names
Choose names that anyone could understand, and avoid creating two accounts for the same thing.
Step 5: Review It with Your Bookkeeper or Accountant
A quick review helps make sure the chart fits your business and your reporting needs. Our guide to small business bookkeeping explains how this fits into your regular routine.
Chart of Accounts for Small Business Example
Here is a simple sample for a service business. It is only an example, so adjust the accounts and numbers to your own situation.
Assets
- 1000 Business Checking
- 1010 Business Savings
- 1100 Accounts Receivable
- 1500 Equipment
Liabilities
- 2000 Accounts Payable
- 2100 Business Credit Card
- 2200 Business Loan
Equity
- 3000 Owner’s Equity
- 3100 Owner’s Draws
Revenue
- 4000 Service Revenue
- 4100 Other Income
Expenses
- 5000 Advertising and Marketing
- 5100 Insurance
- 5200 Office Supplies
- 5300 Rent
- 5400 Software and Subscriptions
- 5500 Utilities
- 5600 Wages and Salaries
- 5700 Professional Fees
Best Practices for a Chart of Accounts for Small Business
- Keep it simple. Include enough accounts to record transactions properly, but avoid creating more than you need. A very small company may have fewer than a hundred accounts.
- Avoid duplicates. Review the list periodically and combine accounts that serve the same purpose.
- Avoid drastic changes. You can add accounts as your business grows. However, changing the whole structure can make reports harder to compare over time.
- Keep business and personal separate. A dedicated business bank account for small business makes it easier to record business activity in the right accounts.
- Review it regularly. As your business changes, check that your accounts still match how you operate.
Frequently Asked Questions
What is a chart of accounts?
It is a list of all the accounts a business uses to record transactions in its general ledger, usually with an account number and name for each.
What are the five types of accounts?
The five main types are assets, liabilities, equity, revenue, and expenses.
How many accounts does a small business need?
There is no fixed number. Use only the accounts you need to record your transactions clearly, and add more as your business grows.
What is the difference between a chart of accounts and a general ledger?
The chart of accounts is the list of accounts. The general ledger is where the transactions for those accounts are recorded.
Can I change my chart of accounts later?
Yes. You can add or combine accounts as your business changes. However, avoid drastic changes to the overall structure so your reports stay comparable.
Conclusion
A chart of accounts for small business gives your bookkeeping a clear structure. By using the five account types, numbering accounts with room to grow, and keeping the list simple, you make your records easier to maintain and your reports easier to understand. Start with the sample above, adapt it to your business, and review it from time to time as your business grows.
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