Quick answer: How do you set up a chart of accounts for a small business?
To set up a chart of accounts for a small business, create one list grouped into the five account types — assets, liabilities, equity, income, and expenses — and give each account a number (1000s for assets, 2000s liabilities, 3000s equity, 4000s income, 5000s+ expenses). Add only the accounts you'll actually use, leave gaps between numbers so you can insert more later, and keep the total around 30–60. BizBooks Pro builds a clean, GAAP-ready chart automatically when you create your company, so you can start from a working structure instead of a blank page.
Your chart of accounts is the single most important thing you'll set up in your bookkeeping — and the one most small business owners give the least thought to. Get it right and your reports are clear, your tax prep is painless, and you can answer "where is my money going?" in seconds. Get it wrong and every report you ever run is built on a shaky foundation, with expenses scattered across vague buckets and numbers that never quite tell you what you need to know.
The good news: a chart of accounts isn't complicated once you see the logic behind it. It's just an organized list, sorted into five categories, with a simple numbering scheme on top. This guide explains exactly what a chart of accounts is, walks through each account type, gives you a sample chart you can copy, and covers the handful of mistakes that trip people up.
What a Chart of Accounts Actually Is
A chart of accounts (COA) is the master list of every category your business uses to track money. Think of it as the labeled folders in a filing cabinet: every dollar that moves through your business gets filed into one of these accounts, and that filing is what makes reports possible. When you run an income statement or balance sheet, the software simply adds up the accounts and arranges them — so the quality of those reports depends entirely on how well your chart is built.
Each account has two things: a name ("Office Supplies," "Accounts Receivable") and a number ("6100," "1200"). The number isn't decoration; it groups accounts by type and controls the order they appear in your reports. This is the structure that turns raw transactions into the financial statements you actually use to run the business — and it ties directly into double-entry bookkeeping, since every entry has to land in real accounts on both sides.
The Five Account Types
Every account you'll ever create belongs to one of five types. The first three live on your balance sheet; the last two live on your income statement.
1. Assets — what you own
Resources the business controls: your bank accounts, accounts receivable (money customers owe you), inventory, equipment, and vehicles. These usually get the 1000s.
2. Liabilities — what you owe
Obligations to others: accounts payable (bills you owe vendors), credit card balances, sales tax collected, payroll liabilities, and loans. These get the 2000s.
3. Equity — the owners' stake
What's left after subtracting liabilities from assets: owner contributions, retained earnings, and owner draws. These get the 3000s.
4. Income — money you earn
Revenue from your core business plus any other income (interest, refunds). These get the 4000s.
5. Expenses — money you spend
The cost of running the business: rent, payroll, software, marketing, supplies — and often a separate band for cost of goods sold. These get the 5000s and up.
Why the order matters: Assets, liabilities, and equity are the three pieces of the accounting equation (Assets = Liabilities + Equity) and they form your balance sheet. Income minus expenses gives your profit, and that's your income statement. The five-type structure is what lets one tidy list feed both reports.
How to Number Your Accounts
The standard convention is a four-digit number, with the first digit signaling the account type:
| Number range | Account type | Examples |
|---|---|---|
| 1000–1999 | Assets | Checking, Accounts Receivable, Equipment |
| 2000–2999 | Liabilities | Accounts Payable, Credit Card, Sales Tax Payable |
| 3000–3999 | Equity | Owner's Capital, Retained Earnings, Owner Draws |
| 4000–4999 | Income | Sales, Service Revenue, Interest Income |
| 5000–5999 | Cost of Goods Sold | Materials, Direct Labor, Freight In |
| 6000–9999 | Expenses | Rent, Payroll, Software, Marketing |
The one rule that saves you grief later: leave gaps. Number your first few expense accounts 6000, 6010, 6020 — not 6001, 6002, 6003. When you inevitably need to slot a new account between two existing ones, the gap means you can add 6015 without renumbering anything. A chart with no room to grow is a chart you'll be fighting in six months.
A Sample Chart of Accounts
Here's a compact, realistic chart for a small service-and-product business. Use it as a starting point and adjust the names to fit how you actually talk about your money.
| Number | Account | Type |
|---|---|---|
| 1000 | Business Checking | Asset |
| 1010 | Business Savings | Asset |
| 1200 | Accounts Receivable | Asset |
| 1400 | Inventory | Asset |
| 1500 | Equipment (net of depreciation) | Asset |
| 2000 | Accounts Payable | Liability |
| 2100 | Credit Card | Liability |
| 2200 | Sales Tax Payable | Liability |
| 2500 | Equipment Loan | Liability |
| 3000 | Owner's Capital | Equity |
| 3100 | Owner Draws | Equity |
| 3900 | Retained Earnings | Equity |
| 4000 | Service Revenue | Income |
| 4100 | Product Sales | Income |
| 5000 | Cost of Goods Sold | COGS |
| 6000 | Rent | Expense |
| 6010 | Payroll & Wages | Expense |
| 6020 | Software & Subscriptions | Expense |
| 6030 | Marketing & Advertising | Expense |
| 6040 | Office Supplies | Expense |
| 6050 | Insurance | Expense |
| 6900 | Bank & Merchant Fees | Expense |
That's roughly two dozen accounts — plenty for most owners to see exactly where money comes from and where it goes, without drowning in detail.
How granular should each account be?
This is where most charts go wrong. The instinct is to create a separate account for everything — "Facebook Ads," "Google Ads," "Flyers," "Business Cards" — but that buries your reports under noise. The better approach: keep one "Marketing & Advertising" account and use line-item detail, tags, or sub-accounts to track the breakdown. Your top-level chart should answer "how much did marketing cost?" at a glance; the detail of which marketing lives one level down. A good test: if you'd never make a decision based on splitting two accounts apart, they should probably be one account.
Common Chart of Accounts Mistakes
- Too many accounts. A 200-line chart isn't precise — it's unreadable. You stop being able to find anything and start miscategorizing out of fatigue.
- Vague catch-all accounts. A giant "Miscellaneous" or "Other Expenses" account is where clarity goes to die. If it's growing, split out what's actually in it.
- No numbering gaps. Consecutive numbers leave you no room to insert accounts in logical order later.
- Mixing personal and business. Owner draws and contributions belong in equity, not buried in expenses — that's a tax-time headache waiting to happen.
- Deleting accounts with history. Removing an account that has past transactions can scramble prior-period reports. Deactivate instead of delete.
Set the chart up thoughtfully once and you rarely touch the structure again — you just record transactions into it. That's the whole payoff: a few minutes of organization up front buys you years of clean reports and easy month-end closes.
Skip the Blank Screen
BizBooks Pro builds a complete, GAAP-ready chart of accounts the moment you create your company — properly numbered and grouped, ready to use or customize. It's desktop accounting that runs on your own computer, with no monthly fee that climbs every year.
Start Free 30-Day Trial Try Live DemoThe Bottom Line
A chart of accounts is just an organized list — five account types, a simple numbering scheme, and enough accounts to see your business clearly without burying yourself in detail. Build it around how you actually make and spend money, leave room to grow, and resist the urge to over-split. Do that, and every report you run afterward will be sharper for it.
And if you'd rather not start from scratch, good accounting software hands you a sensible chart on day one — so the only thing left to do is record your business.
Frequently Asked Questions
What is a chart of accounts for a small business?
A chart of accounts is the master list of every category your business uses to record money — its assets, liabilities, equity, income, and expenses. Each account has a name and a number, and every transaction you book lands in one of them. It's the backbone of your bookkeeping: organize it well and your financial reports practically write themselves.
What are the five main account types?
The five account types are assets (what you own), liabilities (what you owe), equity (the owners' stake), income (money you earn), and expenses (money you spend). Assets, liabilities, and equity appear on the balance sheet; income and expenses appear on the income statement. Every account in your chart belongs to exactly one of these five.
How do you number a chart of accounts?
Most small businesses use a four-digit numbering system grouped by type: 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for income, and 5000s and up for expenses. Leave gaps between numbers (1000, 1010, 1020) so you can insert new accounts later without renumbering everything.
How many accounts should a small business have?
Most small businesses run well on 30 to 60 accounts — enough to see where money goes, few enough to read at a glance. Resist the urge to create a separate account for every vendor or tiny expense; that detail belongs in transactions, tags, or sub-accounts, not in dozens of nearly identical top-level accounts.
Can I change my chart of accounts later?
Yes. You can add accounts at any time, and most software lets you rename or deactivate ones you no longer use. Be cautious about deleting accounts that already have transactions, since that can disturb prior-period reports. The safer move is to mark an account inactive so its history stays intact while it disappears from new entries.
Does BizBooks Pro create a chart of accounts automatically?
Yes. When you create a company in BizBooks Pro, it builds a standard, GAAP-ready chart of accounts for you with proper numbering already in place. You can use it as-is, rename accounts to match your business, or add your own — so you start with a clean structure instead of a blank screen.
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