The Burkland Brief
- Your Chart of Accounts (CoA) is the backbone of your bookkeeping system.
- A clear, consistent structure makes reporting easier and financial decisions smarter.
- Small businesses should design their CoA for simplicity today and scalability tomorrow.
- Use class and location tracking to analyze profitability by region, department, or business unit without cluttering your CoA.
- Review your CoA regularly and lean on professional help to keep it accurate, relevant, and compliant.
What Is a Chart of Accounts?
The Chart of Accounts (CoA) is a central, structured list of all the accounts your company uses to record financial transactions. Think of it as the index of your accounting system: every sale, expense, loan payment, or payroll run has a home here.
For small and mid-sized businesses, the way you structure that index matters. A clean, well-thought-out CoA makes day-to-day bookkeeping faster, keeps weekly and monthly reporting consistent, simplifies tax prep, and gives leaders a clear view of financial health.
The Five Core Account Types
Most CoAs are built on five main categories:
- Assets – What your business owns and expects to provide value in the future. Examples: cash, accounts receivable, inventory, property, equipment.
- Liabilities – What your business owes. Examples: accounts payable, credit cards, loans, mortgages.
- Equity – The owner’s residual interest after liabilities are deducted. Examples: retained earnings, capital contributions.
- Revenue – All the income generated by your business activities. Examples: product sales, service fees, rental income.
- Expenses – The costs of running your business. Examples: payroll, rent, utilities, depreciation.
Note: Many businesses choose to include Cost of Goods Sold (COGS) within their expense accounts, while others break it out as its own category. Either approach works—what matters is consistency and clarity in how you track it.
How the Numbering System Works
Assigning numbers to accounts adds structure and consistency, making it easier to manage, sort, and expand your CoA as your company grows. A common approach looks like this:
- Assets – Start with “1” (e.g., 1000 = Cash, 1100 = Accounts Receivable).
- Liabilities – Start with “2” (e.g., 2000 = Accounts Payable, 2100 = Business Credit Card).
- Equity – Start with “3” (e.g., 3000 = Owner’s Equity, 3100 = Retained Earnings).
- Revenue – Start with “4” (e.g., 4000 = Sales, 4100 = Service Income).
- Expenses – Start with “5–8” (e.g., 5000 = Payroll, 5100 = Rent, 5200 = Office Supplies).
Sub-accounts can add detail without creating unnecessary clutter. For example, under “5000 Payroll,” you might use “5110” for Salaried Employees and “5120” for Hourly Employees. This approach allows flexibility while maintaining clarity.
Example Chart of Accounts
| Account Number | Account Type | Account Subtype | Account Name |
| 1000 | Assets | Current Assets | Cash and Cash Equivalents |
| 1010 | Assets | Current Assets | Accounts Receivable |
| 1015 | Assets | Current Assets | Unbilled Revenue |
| 1020 | Assets | Current Assets | Allowance for Doubtful Accounts |
| 1040 | Assets | Current Assets | Prepaid Expenses |
| 1050 | Assets | Current Assets | Short-Term Investments |
| 1060 | Assets | Current Assets | Customer Deposits |
| 1100 | Assets | Non-Current Assets | Property and Equipment |
| 1110 | Assets | Non-Current Assets | Accumulated Depreciation |
| 1120 | Assets | Non-Current Assets | Intellectual Property |
| 1130 | Assets | Non-Current Assets | Deferred Sales Commissions – Long-Term |
| 1140 | Assets | Non-Current Assets | Security Deposits |
| 2000 | Liabilities | Current Liabilities | Accounts Payable |
| 2020 | Liabilities | Current Liabilities | Accrued Expenses |
| 2030 | Liabilities | Current Liabilities | Sales Tax Payable |
| 2040 | Liabilities | Current Liabilities | Wages Payable |
| 2045 | Liabilities | Current Liabilities | Accrued PTO |
| 2050 | Liabilities | Current Liabilities | Payroll Liabilities |
| 2060 | Liabilities | Current Liabilities | Lease Liabilities – Current |
| 2100 | Liabilities | Long-Term Liabilities | Deferred Revenue |
| 2110 | Liabilities | Long-Term Liabilities | Convertible Notes Payable |
| 2120 | Liabilities | Long-Term Liabilities | Lease Liabilities |
| 3000 | Equity | Owner’s Equity | Common Stock |
| 3010 | Equity | Owner’s Equity | Preferred Stock |
| 3020 | Equity | Owner’s Equity | Additional Paid-In Capital |
| 3030 | Equity | Owner’s Equity | Retained Earnings |
| 3040 | Equity | Owner’s Equity | Accumulated Other Comprehensive Income |
| 4000 | Revenue | Operating Revenue | Revenue |
| 5000 | COGS | Direct Costs | Direct Labor |
| 5010 | COGS | Direct Costs | Contractors |
| 5020 | COGS | Direct Costs | Software Licenses |
| 5030 | COGS | Direct Costs | Other Direct Costs |
| 6000 | Expenses | Payroll | Salaries and Wages |
| 6010 | Expenses | Payroll | Payroll Taxes |
| 6020 | Expenses | Payroll | Employee Benefits |
| 6100 | Expenses | Research & Development | R&D Salaries and Benefits |
| 6110 | Expenses | Research & Development | Development Tools and Services |
| 6200 | Expenses | Sales & Marketing | Advertising and Promotion |
| 6210 | Expenses | Sales & Marketing | Sales Commissions |
| 6220 | Expenses | Sales & Marketing | Marketing Automation Tools |
| 6300 | Expenses | G&A | Office Supplies and Expenses |
| 6310 | Expenses | G&A | Professional Services |
| 6320 | Expenses | G&A | Insurance |
| 6311 | Expenses | G&A | Legal |
| 6312 | Expenses | G&A | Accounting |
| 6330 | Expenses | G&A | Software Subscriptions |
| 6340 | Expenses | G&A | Travel |
| 6400 | Expenses | Facilities | Rent |
| 6410 | Expenses | Facilities | Utilities |
| 6500 | Expenses | Depreciation | Depreciation Expense |
| 6510 | Expenses | Amortization | Amortization Expense |
| 8000 | Other Income | Non-Operating Revenue | Interest and Investment Income |
Using Class and Location Tracking
Most modern accounting platforms offer “class” or “location” tagging. Instead of adding dozens of extra accounts, you can tag transactions by department, branch, product line, or geographic region.
For example, a business with multiple retail locations can run a profit and loss statement by store without having separate revenue and expense accounts for each one. This feature saves time, prevents messy account lists, and gives owners the insights they need to see which parts of the business are thriving.
10 Best Practices for Your Chart of Accounts
- Keep It Simple – Start with a straightforward structure that matches your operations. Add complexity only when necessary.
- Be Consistent – Use clear naming and numbering rules across all accounts. Consistency reduces confusion and errors.
- Stay Relevant – Align your CoA with your industry, revenue streams, and business model. Avoid one-size-fits-all templates.
- Plan for Growth – Build in flexibility so your CoA can handle new product lines, regions, or subsidiaries.
- Follow Standards – Ensure compliance with applicable accounting standards. This protects your credibility with banks, lenders, and auditors.
- Review Regularly – Update your CoA regularly to reflect business changes and keep reporting meaningful.
- Use Sub-Accounts Wisely – Drill down into details without overloading the main account list.
- Train Your Team – Make sure anyone entering data understands the structure and uses accounts properly.
- Leverage Automation – Use accounting software and automation tools to reduce manual work and improve accuracy.
- Call in the Experts – A seasoned business accountant can help you optimize your CoA for both compliance and decision-making.
Burkland’s bookkeeping team helps small and mid-sized businesses set up, maintain, and optimize their CoA so owners can focus on running and growing their companies. Contact us to learn more.