What it is
The chart of accounts is the list of buckets your money moves between. Every transaction in the system moves an amount from one account to another: a sale moves money into Sales income and into Bank; paying rent moves it out of Bank and into Rent expense.
Get this right early. Changing it later is possible, but reports you have already shown to a bank or a tax authority were built on the old structure.
The six account types
Every account belongs to exactly one type, and the type decides which report it appears on and which direction increases it.
| Type | What it holds | Appears on |
|---|---|---|
| Asset | What the business owns — bank, cash, stock, equipment, money owed to you | Balance Sheet |
| Liability | What the business owes — suppliers, loans, tax payable | Balance Sheet |
| Equity | The owners' stake — capital introduced, retained profit | Balance Sheet |
| Income | What you earn | Profit & Loss |
| COGS | The direct cost of what you sold | Profit & Loss |
| Expense | Running costs — rent, salaries, utilities | Profit & Loss |
The split between COGS and Expense is what produces your gross profit as distinct from your net profit. Put the cost of the goods or services you actually sold into COGS, and the cost of running the business into Expense. If you sell 100 chairs, the chairs are COGS and the shop rent is Expense.
Setting yours up
Go to Accounting → Chart of Accounts. You have three options:
Apply an industry template. The fastest route. Choose the template closest to your business and it creates a complete chart ready to use. You can then rename, add and remove accounts to taste.
Seed a basic chart. Creates a minimal set of top-level accounts, one per type. Useful if you want to build your own structure from a clean base — but be aware it really is minimal, and you will want to add accounts before you start posting, or everything lands in the same few buckets and your reports tell you nothing useful.
Add accounts one at a time. Click New account and give each one a code and a name.
Account codes
The code controls the order accounts appear in, and conventionally also groups them. A common scheme:
1000–1999 Assets
2000–2999 Liabilities
3000–3999 Equity
4000–4999 Income
5000–5999 Cost of goods sold
6000–9999 ExpensesLeave gaps. Numbering your expenses 6000, 6001, 6002 means the next account you add has to go on the end; numbering them 6000, 6100, 6200 means you can slot one in where it belongs.
Accounts you will want
Whatever template you start from, check you have:
- A bank account for each real bank account, named the same as the real one.
- Accounts Receivable — money customers owe you. Invoices post here automatically.
- Accounts Payable — money you owe suppliers. Bills post here automatically.
- A tax account for sales tax collected and paid.
- Retained earnings — where last year's profit ends up when a year closes.
Deactivating rather than deleting
An account that has transactions against it cannot simply disappear, because the history that references it would stop making sense. Mark it inactive instead: it stops appearing when you post new transactions, but old reports still work.