Chart of accounts (COA)
The complete list of accounts a business uses to record its transactions, organized into assets, liabilities, equity, revenue and expenses.
In short
- Every transaction is posted to accounts from this list.
- Its structure decides what reports can show. It is worth designing carefully.
- Too many accounts create coding errors; too few hide useful detail.
A chart of accounts is the index of every account in the general ledger. Each account has a number and a name, and belongs to one of five types: assets, liabilities, equity, revenue or expenses. Numbering usually follows those types, for example 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue and 5000s and up for expenses.
Why the structure matters
Financial statements are built by adding up accounts. If advertising and trade shows share one account, no report will ever separate them. If software is spread across five accounts, management reports need manual rework. The chart of accounts is where those decisions are made, once, for every transaction that follows.
Designing a good one
- Match how the business is managed: accounts for the costs that decisions are actually made about.
- Use dimensions for detail: departments, locations, projects and cost centres are usually better tracked as separate tags than as extra accounts.
- Keep tax in mind: separate accounts for meals and entertainment, for example, make the 50% limit easy to apply.
- Leave room: gaps in the numbering let new accounts slot in logically.
Employees rarely see the chart of accounts directly. Expense categories and item codes in other systems map onto it. Cleaning up the chart often means updating those mappings too.
Worked example
A small slice of a chart
| Number | Account | Type |
|---|---|---|
| 1010 | Operating bank account | Asset |
| 1200 | Accounts receivable | Asset |
| 2100 | Accounts payable | Liability |
| 2310 | GST/HST payable | Liability |
| 4000 | Service revenue | Revenue |
| 6150 | Meals and entertainment | Expense |