Your chart of accounts is the list of categories your business uses to record money: sales, rent, software, bank and so on. Every transaction is posted to accounts on this list, and your reports are built from it. A good chart is simple and consistent. A messy one makes every report harder to read.
The five account types
- Assets: bank, receivables, stock, equipment.
- Liabilities: payables, loans, tax owed.
- Equity: owner’s capital, drawings, retained earnings.
- Income (revenue): sales and other income.
- Expenses: costs of running the business.
Assets, liabilities and equity appear on the balance sheet. Income and expenses appear on the profit and loss.
Numbering
Many charts use number ranges so accounts sort in order: for example 100s for assets, 200s for liabilities, 300s for equity, 400s for income and 500 and above for expenses. Use whatever scheme you like, but keep it consistent.
Keep it simple
- Start with the default chart that comes with your software, and add only what you need.
- Group similar costs. One “Travel” account is usually better than six.
- Match your categories to what your tax return or accountant needs, for example the lines on the Self Assessment self-employment pages.
- Use clear names that anyone can understand.
Accounts to know about
- Accounts receivable and accounts payable: system accounts that track what customers owe you and what you owe suppliers.
- VAT accounts: track VAT charged and reclaimed.
- Retained earnings and owner’s equity: where profits and drawings end up.
- Suspense or “ask my accountant”: a temporary home for items you cannot yet categorise. Clear it regularly.
Mistakes to avoid
- Creating a new account for every supplier or small cost.
- Deleting an account that already has transactions. Make it inactive instead.
- Mixing personal items into business accounts.
- Changing the structure part-way through a tax year without a reason.
Using segments
If you need to track projects, departments or properties, use segments on top of your accounts rather than multiplying accounts. See segments.
How AvrioBooks helps
AvrioBooks gives you a default chart of accounts and lets you add, edit and deactivate accounts. See Chart of accounts, and read what is double-entry bookkeeping.
Frequently asked questions
What is a chart of accounts?
The list of categories a business uses to record transactions, such as sales, rent, software, bank and loans. Reports are built from it.
How many accounts should I have?
As few as you need. Group similar costs so reports stay readable.
Can I delete an account?
Not once it has transactions. Make it inactive instead so history stays intact.
Should I use a segment or a new account?
Use segments to track projects, departments or properties, and keep accounts for the type of income or cost.
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