What Is a Chart of Accounts?
A chart of accounts is simply a list of all the categories your business uses to organise its financial transactions. Think of it as a filing system for your money — every dollar that comes in or goes out gets sorted into one of these categories.
When you buy office supplies, that goes into an “Office Supplies” account. When a client pays you, that goes into a “Sales Revenue” account. Your chart of accounts is the master list of all these buckets.
The Five Account Types
Every account in your chart falls into one of five types. These are the building blocks of all bookkeeping:
1. Assets — What You Own
Anything of value that your business possesses. This includes:
- Cash and bank accounts — money in your accounts
- Accounts receivable — money clients owe you
- Equipment — computers, tools, vehicles
- Inventory — products you have in stock
2. Liabilities — What You Owe
Debts and obligations your business has to others:
- Accounts payable — bills you haven’t paid yet
- Loans — business loans or lines of credit
- Credit cards — outstanding balances
- Tax obligations — taxes you’ve collected but not yet remitted
3. Equity — What’s Yours
The owner’s stake in the business. It’s essentially assets minus liabilities:
- Owner’s capital — money you’ve invested
- Retained earnings — profits kept in the business
- Owner’s drawings — money you’ve taken out
4. Revenue — What You Earn
Income your business generates:
- Sales revenue — money from selling products or services
- Interest income — earnings from bank accounts or investments
- Other income — anything else that brings money in
5. Expenses — What You Spend
Costs of running your business:
- Rent — office or workspace costs
- Salaries — payments to employees or contractors
- Marketing — advertising and promotion
- Software subscriptions — tools you use to run your business
Setting Up Your Chart of Accounts
Here are some practical tips to get started:
- Start simple. You can always add accounts later. Most small businesses need 15-30 accounts to start.
- Be specific enough to be useful. “Office Expenses” is better than “Miscellaneous,” but “Blue Pen Expenses” is too granular.
- Match your business. A freelance designer and a retail shop will have different charts. Tailor yours to how your business actually works.
- Use numbers. Most charts use a numbering system (e.g., 1000s for assets, 2000s for liabilities) to keep things organised.
Fastbooks comes with a sensible default chart of accounts that works for most small businesses. You can customise it as your needs evolve — adding new accounts, renaming existing ones, or reorganising categories to match the way you think about your finances.