Quick answer: How do you build a chart of accounts for a small business?
Build a chart of accounts for a small business by writing one list sorted into five categories — assets, liabilities, equity, income, and expenses — and assigning each a number (1000s assets, 2000s liabilities, 3000s equity, 4000s income, 5000s+ expenses). Include only accounts you'll genuinely use, space the numbers so you can add more down the road, and aim for roughly 30–60 in total. Kantivo generates a clean, GAAP-ready chart the moment you set up your company, so you launch from a working framework instead of a blank screen.
The chart of accounts is the foundation of your entire bookkeeping system — and it's also the part most owners set up on autopilot. Nail it, and your statements read clearly, tax season stops being a scavenger hunt, and the question "where's my money actually going?" takes seconds to answer. Botch it, and every report you ever pull rests on a wobbly base, with costs smeared across fuzzy buckets and figures that never quite say what you need.
Here's the reassuring part: a chart of accounts isn't hard once the structure clicks. Strip it down and it's an organized list, divided into five groups, with a straightforward numbering system on top. Below we'll define what it is, go through each category, hand you an example chart to copy, and flag the small set of slip-ups that catch people out.
So, What Is a Chart of Accounts?
A chart of accounts (COA) is the full directory of every category your business uses to track money. Picture the labeled folders in a filing cabinet: every dollar that passes through the business gets dropped into one of these accounts, and that sorting is what makes reporting possible at all. Run an income statement or a balance sheet and the software just totals the accounts and lines them up — so how good those reports are comes straight down to how well the chart is put together.
Each account carries two pieces: a name ("Office Supplies," "Accounts Receivable") and a number ("6100," "1200"). That number isn't ornamental — it clusters accounts by category and dictates the sequence they appear in on your reports. This framework is what converts raw entries into the financial statements you lean on, and it plugs directly into double-entry bookkeeping, where every transaction has to land in real accounts on both sides.
The Five Account Categories
Any account you'll ever set up falls into one of five categories. The first three sit on your balance sheet; the last two sit on your income statement.
1. Assets — what you hold
What the business controls: bank accounts, accounts receivable (what customers owe you), inventory, gear, and vehicles. These typically take the 1000s.
2. Liabilities — what you owe
Debts to others: accounts payable (vendor bills), card balances, sales tax collected, payroll obligations, and loans. These take the 2000s.
3. Equity — the owners' share
Whatever's left after liabilities come out of assets: owner contributions, retained earnings, and owner draws. These take the 3000s.
4. Income — what comes in
Revenue from your core work plus any extras (interest, refunds). These take the 4000s.
5. Expenses — what goes out
The cost of operating: rent, payroll, software, marketing, supplies — frequently with a separate band for cost of goods sold. These take the 5000s and beyond.
Why the sequence counts: Assets, liabilities, and equity are the three legs of the accounting equation (Assets = Liabilities + Equity), and together they build your balance sheet. Income minus expenses lands your profit — that's the income statement. The five-category layout is exactly what lets a single neat list feed both reports.
How to Number the Accounts
The usual convention is a four-digit number where the leading digit flags the category:
| Number range | Category | Examples |
|---|---|---|
| 1000–1999 | Assets | Checking, Accounts Receivable, Equipment |
| 2000–2999 | Liabilities | Accounts Payable, Credit Card, Sales Tax Payable |
| 3000–3999 | Equity | Owner's Capital, Retained Earnings, Owner Draws |
| 4000–4999 | Income | Sales, Service Revenue, Interest Income |
| 5000–5999 | Cost of Goods Sold | Materials, Direct Labor, Freight In |
| 6000–9999 | Expenses | Rent, Payroll, Software, Marketing |
The single habit that spares you pain later: space the numbers out. Number your first expense accounts 6000, 6010, 6020 — not 6001, 6002, 6003. When you eventually need to wedge a new account between two existing ones, that gap lets you add 6015 without touching anything else. A chart with no breathing room is one you'll be wrestling within months.
An Example Chart of Accounts
Below is a lean, realistic chart for a small business that both sells products and provides services. Treat it as a launch pad and tweak the names to match how you actually describe your money.
| Number | Account | Category |
|---|---|---|
| 1000 | Business Checking | Asset |
| 1010 | Business Savings | Asset |
| 1200 | Accounts Receivable | Asset |
| 1400 | Inventory | Asset |
| 1500 | Equipment (net of depreciation) | Asset |
| 2000 | Accounts Payable | Liability |
| 2100 | Credit Card | Liability |
| 2200 | Sales Tax Payable | Liability |
| 2500 | Equipment Loan | Liability |
| 3000 | Owner's Capital | Equity |
| 3100 | Owner Draws | Equity |
| 3900 | Retained Earnings | Equity |
| 4000 | Service Revenue | Income |
| 4100 | Product Sales | Income |
| 5000 | Cost of Goods Sold | COGS |
| 6000 | Rent | Expense |
| 6010 | Payroll & Wages | Expense |
| 6020 | Software & Subscriptions | Expense |
| 6030 | Marketing & Advertising | Expense |
| 6040 | Office Supplies | Expense |
| 6050 | Insurance | Expense |
| 6900 | Bank & Merchant Fees | Expense |
That's about two dozen accounts — more than enough for most owners to pinpoint where revenue arrives and where it leaves, without sinking under detail.
How detailed should each account be?
This is the spot where most charts come apart. The temptation is to spin up an account for everything — "Facebook Ads," "Google Ads," "Flyers," "Business Cards" — but that smothers your reports in clutter. The smarter play: keep one "Marketing & Advertising" account and let line items, tags, or sub-accounts carry the breakdown. Your top-level chart should tell you "what did marketing cost?" in a glance; which marketing lives a tier below. Quick gut-check: if you'd never make a decision off splitting two accounts apart, they're probably one account.
Chart of Accounts Mistakes to Avoid
- Too many accounts. A 200-row chart isn't precise — it's illegible. You lose the ability to find anything and start miscategorizing out of sheer fatigue.
- Vague catch-all buckets. A bloated "Miscellaneous" or "Other Expenses" account is where clarity quietly dies. If it keeps growing, break out what's really inside it.
- No spacing in the numbers. Back-to-back numbers leave nowhere to insert accounts in a sensible order later.
- Blurring personal and business. Owner draws and contributions belong in equity, not tucked among expenses — otherwise tax time turns into untangling.
- Deleting accounts with history. Removing an account that carries past transactions can scramble earlier reports. Deactivate rather than delete.
Set the chart up with care once and you'll rarely revisit the structure — you simply record transactions into it. That's the entire payoff: a few minutes of organization up front earns you years of clean reports and smoother monthly closes.
Never Start From a Blank Screen
Kantivo assembles a full, GAAP-ready chart of accounts the instant you create your company — numbered, grouped, and ready to use or reshape. It's desktop accounting that lives on your own computer, with no subscription that creeps upward every year.
Start Free 30-Day Trial Try Live DemoThe Takeaway
A chart of accounts is simply an organized list — five categories, an easy numbering scheme, and just enough accounts to see your business clearly without burying yourself in minutiae. Shape it around how you really earn and spend, leave room to grow, and fight the urge to over-split. Do that, and every report you run afterward gets sharper for it.
And if starting from scratch holds no appeal, capable accounting software hands you a sensible chart on day one — leaving you nothing to do but record the business.
Frequently Asked Questions
What is a chart of accounts in small business accounting?
It's the complete index of the categories your business uses to record money — assets, liabilities, equity, income, and expenses. Every account carries a name and a number, and each transaction you post drops into one of them. Build that index well and your reports come together almost on their own.
What are the five categories of accounts?
Assets (things you own), liabilities (things you owe), equity (the owners' share), income (money coming in), and expenses (money going out). The first three make up the balance sheet, while income and expenses form the income statement. Every account you create slots into exactly one of these five.
What is the standard way to number a chart of accounts?
A four-digit scheme grouped by category is the norm: the 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for income, and 5000s upward for expenses. Space the numbers out — 1000, 1010, 1020 — so you can drop in new accounts later without reshuffling the whole list.
How many accounts does a small business need?
Somewhere around 30 to 60 works for most. That's detailed enough to see where the money flows, yet short enough to scan quickly. Don't spin up a fresh account for every supplier or minor cost — push that level of detail into transactions, tags, or sub-accounts instead.
Is it safe to edit a chart of accounts after setup?
Adding and renaming accounts is fine any time. Deleting one that already holds transactions is the risky move, since it can distort earlier reports. Rather than delete, switch the account to inactive — its history stays intact while it drops out of future entries.
Does Kantivo set up a chart of accounts for me?
It does. Creating a company in Kantivo generates a standard, GAAP-ready chart of accounts with the numbering already sorted. Keep it as-is, rename accounts to suit your business, or layer on your own — either way you begin with a working framework rather than an empty list.
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