Accounting and bookkeeping
Chart of accounts (COA)
A chart of accounts is a complete, organised list of every financial account used by a business to record transactions and prepare financial statements.
What is Chart of accounts?
Think of the chart of accounts as the filing system for your entire business. Whenever you spend or receive money, the transaction must be categorised so you know exactly where your cash went and where it came from. The chart provides the specific categories, or accounts, needed to record these movements. It is typically broken down into five main groups: assets, liabilities, equity, revenue, and expenses. As your business grows, you will add new accounts to track specific details, such as separating office supplies from rent. A well-structured list ensures your bookkeeper can quickly classify transactions. This structure forms the foundation of double-entry bookkeeping, ensuring your financial statements accurately reflect the health of your organisation. Without it, tracking your financial performance becomes disorganised and prone to errors.
How Chart of accounts works
Setting up a chart of accounts involves assigning a unique name and reference number to every financial category in your business. The numbering system follows a logical sequence based on the type of account. Assets usually start with the number one, liabilities with two, equity with three, revenue with four, and expenses with five. When a transaction occurs, you or your accountant will select the appropriate accounts to debit and credit. For instance, paying a utility bill involves recording an expense in your utilities account and a decrease in your bank account. Accounting software uses these mapped accounts to automatically generate your balance sheet and profit and loss statement. You can customise the list at any time by adding sub-accounts to track specific costs or income streams more closely.
- Identify the five main account types required for financial reporting.
- Assign a logical numbering block to each major account category.
- Create specific accounts for individual assets, liabilities, income, and expenses.
- Record every business transaction into the correct corresponding accounts.
- Review and add sub-accounts as your business operations expand.
Why it matters for your business
A tidy chart of accounts gives you immediate visibility into your business performance. If your accounts are too broad, you will not know exactly which expenses are eating into your profit margins. If they are too detailed, categorising transactions becomes a tedious chore. Finding the right balance allows you to generate accurate reports for investors, tax authorities, and internal review. A standard structure also makes it easier to hand your books over to an accountant at year-end. Paper & Pen posts journal entries directly to your chart of accounts, keeping your financial records organised automatically.
See also
Questions
Common questions
Can I change my chart of accounts later?
What is the difference between a general ledger and a chart of accounts?
How many accounts should a small business have?
Related terms
- General ledger A general ledger is the master accounting record of a business, containing all financial transactions categorised by account to track assets, liabilities, equity, revenue and expenses.
- Double-entry bookkeeping Double-entry bookkeeping is a fundamental accounting method where every financial transaction requires at least two equal and opposite entries to keep the accounting equation perfectly balanced.
- Journal entry A journal entry is a formal accounting record that logs a business transaction by showing the date, the accounts affected, and equal debit and credit amounts.
- Balance sheet A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time to provide a snapshot of its overall financial health.
- Profit and loss statement A profit and loss statement is a financial report that summarises a company's revenues, costs and expenses during a specific period to show whether it generated a profit or incurred a loss.
- Accounts payable Accounts payable is the total amount of short-term debt your business owes to suppliers and vendors for goods or services that you have received but have not yet paid for.