A chart of accounts is the master list of every account your business tracks money in and out of — assets, liabilities, equity, income, and expenses. Getting the structure right early saves a painful restructuring project later, once years of transactions are already tagged to the wrong categories.
The five core account categories
- ✓Assets: Cash, bank accounts, receivables, inventory, and fixed assets like equipment.
- ✓Liabilities: Payables, loans, and statutory dues like GST payable or TDS payable.
- ✓Equity: Owner's capital and retained earnings.
- ✓Income: Sales revenue, broken down by product line or service category if you need that visibility.
- ✓Expenses: Cost of goods sold, operating expenses, and administrative costs, grouped in a way that matches how you actually review spend.
The most common mistake is making the chart of accounts too granular too early — dozens of near-duplicate expense categories that nobody consistently uses, which makes reporting messier, not clearer.
Numbering and scaling
Most businesses use a numeric range per category (1000s for assets, 2000s for liabilities, and so on) so new accounts can be inserted in the right place without renumbering everything. Keep it simple enough that whoever is entering bills can pick the right category without guessing.
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