How to set up a chart of accounts list with examples

A chart of accounts is a complete, categorized listing of every account in your company's general ledger. It categorizes transactions into primary accounts like assets, liabilities, equity, expenses, and revenue. Think of it as an organized filing system for your finances. Just as a computer uses folders to organize documents, your chart of accounts uses account codes and categories to organize financial transactions.

A standard chart of accounts is divided into 5 categories:

1. Assets are things your business owns that have value. This includes cash on hand, bank accounts, accounts receivable, inventory, equipment, vehicles, and real estate.
2. Liabilities are debts that your business owes. This includes loans, credit card balances, accounts payable, payroll taxes payable, and other obligations.
3. Equity tracks the owner's contributions into the business and their share of ownership. This includes common stock, retained earnings, and owner's capital.
4. Revenue tracks money earned through the sale of goods or services. This includes sales revenue, service revenue, subscription income, and investment gains.
5. Expenses are the costs you incur to generate revenue. This includes payroll, rent, utilities, cost of goods sold, marketing, travel, and office supplies.

When you put these five categories together, you get a clear picture of your finances as a business owner.

To understand how a chart of accounts functions, you need to know the basics of how transactions get recorded. Every transaction in accounting requires at least two accounts. One account gets debited and one gets credited. This is called double-entry accounting, and it's the foundation of modern accounting.

Here's how it works in practice:

• Asset accounts normally have debit balances. To increase an asset, you debit it. To decrease an asset, you credit it.
• Liability accounts normally have credit balances. To increase a liability, you credit it. To decrease a liability, you debit it.
• Equity accounts normally have credit balances and follow the same logic as liabilities.
• Revenue accounts get credited when income comes in, which creates a credit balance.
• Expense accounts get debited when you spend money, which creates a debit balance.

Let's look at a simple example. When you write a check for rent, your accounting software automatically debits your Rent Expense account and credits your Cash account. Both sides of the transaction balance, which is why it's called double-entry accounting. This system creates built-in checks against errors and ensures your books always balance.

When you set up your chart of accounts, each account gets designated with the correct normal balance (debit or credit). This ensures transactions are recorded accurately from the start. It's especially important when you're integrating with accounting software or automating your GL coding.

As your business grows, you'll notice that your chart of accounts should organize accounts not just by type but also by how quickly they convert to cash or need to be paid off.

Current assets are assets that'll convert to cash or get used up within one year. This includes cash, accounts receivable, inventory, and prepaid expenses. Current assets appear first on your balance sheet because they represent your short-term liquidity. Non-current assets are long-term assets that take more than one year to convert to cash or fully depreciate. Think land, buildings, equipment, vehicles, and intellectual property.

Current liabilities are debts that must be paid back within one year. This includes credit card balances, short-term loans, accounts payable, accrued expenses, and payroll taxes payable. This distinction matters because it shows your immediate financial obligations. Non-current liabilities are long-term debts that extend beyond one year, such as mortgages, bonds payable, and long-term leases.

By organizing your accounts this way, your chart of accounts automatically feeds into your balance sheet in the correct order. This makes financial analysis clearer for stakeholders and lenders.

There are countless reasons why you need a chart of accounts for your business, but it’s worth diving a bit deeper into all the benefits. Below are 5 of the most important to consider.

Full visibility across all revenue and expenses

A well-structured chart of accounts helps you organize a ton of financial transactions in a way that is easy to see and sort through. It shows the effectiveness and gaps in different areas of your business, and provides a full overview of where you’re making and spending money. And because transactions are displayed in an itemized and categorized way, investors and shareholders can get a quick view of specific financial data when they need it.

Clear classification of financial transactions

Your chart of accounts helps categorize all financial transactions into meaningful categories. These categories are typically standardized at a general level, but can be further modified according to the structure of your businesses. By organizing them this way, you can easily understand where your money is coming from and where it’s going. As a result, you provide visibility for stakeholders, can optimize your resource allocation, and identify trends over time that need addressing. You can even avoid and prevent fraudulent activity using your chart of accounts by spotting discrepancies.

A strong foundation for strategic decisions

Having a single source of truth gives you the right birds-eye view of all your important financial information to make strategic financial decisions. For example, seeing where you are overspending and underspending can help immensely with your budget management. For example, if you’re considering expanding your business you can see if you have enough assets to pay off your current debts before taking on a new loan.

Enhanced regulatory compliance and GAAP alignment

One of the most important, and often overlooked, advantages of a solid chart of accounts is compliance with accounting standards. If your chart of accounts doesn't align with Generally Accepted Accounting Principles (GAAP), you risk several serious consequences. Having a disorganized or inadequate chart of accounts can lead to compliance issues that might expose your business to penalties or even legal ramifications. Tax season gets much harder too. When your accounts aren't properly organized and classified according to tax guidelines, you're more likely to make errors on tax filings. That can trigger penalties and IRS scrutiny.

By accurately setting up a solid chart of accounts from the start and maintaining it according to GAAP standards, audits become straightforward, tax filings are accurate, and you avoid costly penalties. Your financial statements will faithfully represent your company's position, which matters when you're applying for loans, attracting investors, or going through a funding round.

While a Chart of Accounts can be specifically modified for the needs of your business, there are generally accepted best practices to keep in mind as you set yours up for the first time.

1. Define clear categories and subcategories

Typically, the basic structure of a chart of accounts includes five main categories which we’ve covered above: assets, liabilities, equity, income, and expenses. Under these categories you would then further divide your chart of accounts into subcategories for more detailed tracking and analysis.

These subcategories vary depending on your business type and industry, but could include things like cash, investments, inventory, and accounts receivable under your assets. However, if you don’t carry inventory, that line item wouldn’t be necessary to track. By defining clear categories and subcategories you can ensure you track all necessary transactions that provide a full financial view of your business.

2. Establish a numbering system

Most charts of accounts employ a number system to organize transactions into categories. Typically, each account is numbered so that accountants can quickly identify it by the first digit.

Here’s an example of a simple structured coding system:

And as an example of how these numbers might look within your CoA with categorized transactions:

1000 Assets

• 1200 Receivables
• 1300 Inventories
• 1400 Cash

2000 Liabilities

• 2100 Accounts payable
• 2200 Taxes payable
• 2300 Other accrued expenses

3000 Equity

• 3100 Common stock
• 3200 Preferred stock

4000 Revenue

• 3100 Sales revenue

5000 Expenses

• 5100 Cost of Goods Sold

3. Maintain consistency

By establishing clear guidelines for categories, numbering, and account classifications, your chart of accounts becomes more consistent and easier to manage. This is important because it creates consistency for stakeholders reviewing your numbers over time, makes it easier for new employees to pick up where a previous accountant left off, and makes it easier to compare the performance of accounts over time.

4. Use accounting software

A lot of accounting software helps standardize many aspects of a chart of accounts, which ensures consistency over time and makes it easier to scale as your business grows. For example, platforms like NetSuite and Sage Intacct can both help provide a template for a standard Chart of Accounts and simplify coding. And when linked with accounting automation software like Brex, you can automate everything from initial transaction to GL coding to reporting.

5. Regularly review and update your chart of accounts

You should look at your chart of accounts as a dynamic, ever evolving tool that changes alongside your business. So it’s important to conduct periodic reviews that ensure your categories are still relevant, accurate, and aligned to your business needs and changing industry standards.

For example, at the end of the year review all of your accounts and identify if there are gaps or areas for consolidation. This ensures that managing your chart of accounts does not become a tedious mess, but instead a simple, accurate task.

Pro tip: Think through your chart of accounts before an ERP integration or implementation, says Franklin Templeton CAO Lindsey Oshita.

B2B SaaS companies have unique financial structures that differ from traditional software, services, or product businesses. Your chart of accounts should reflect this structure to enable proper revenue recognition, cost allocation, and profitability analysis by customer segment.

Here's what a chart of accounts might look like for a mid-market B2B SaaS company with multiple product lines and customer segments:

This structure enables a B2B SaaS company to answer critical questions about your business.

• What is my gross margin by product line?
• What's the cost per customer acquisition?
• What's the CAC payback period?
• How much am I spending on R&D vs. sales?
• What's my magic number?

By breaking out revenue by type and costs by function, you can run the financial analyses that matter for SaaS profitability and unit economics.

Creating a chart of accounts can be quite simple, but whether you’re scaling or pivoting, you’re bound to face a few challenges with scaling and maintaining an effective chart of accounts. Here are a few to consider:

Overcomplication

Your chart of accounts should provide a quick overview of vital financial information. The most common mistake is creating too many subcategories or recording separate accounts for every product you sell or every utility you pay. This creates an overly complicated chart that's hard to read and slows down transaction entry.

The same goes for numbering systems with too many variables. If your code becomes a puzzle that only one person understands, you have a problem.

How to fix it: Limit yourself to three levels of account hierarchy at most. If you need more granularity, use subledgers or dimensional accounting. Modern software lets you tag transactions with additional attributes without adding complexity to your chart of accounts.

Too little detail

It's also possible to have too little detail in your chart of accounts. If you lump all expenses under one "Expenses" account, it's hard to evaluate what's working and what's not. You can't identify where you might be overspending or optimize resource allocation. If you don't break down payroll from office supplies from marketing spend, you're flying blind on cost management.

How to fix it: Create subcategories for significant expense areas. Break payroll into regular salaries, contractor fees, and payroll taxes. Break administrative expenses into rent, utilities, insurance, and legal fees. Break marketing into paid ads, content creation, and events. This level of detail enables smart decisions.

Deleting accounts too soon

When you delete an old account mid-year, you corrupt your historical records. It's difficult to add items back in once they're deleted, and reconciliation becomes a nightmare.

How to fix it: Wait until the end of the year to delete old accounts. Better yet, don't delete them at all. Instead, mark them as inactive and move them to an archive section of your chart of accounts. This preserves your historical data and makes year-over-year comparisons possible.

Not adjusting to the changing need of your business

When your chart of accounts no longer aligns to your business structure and operations, it leads to reporting inaccuracies. If you launched a new product line but didn't create accounts to track it separately, you can't measure its profitability. If you opened a second office but aren't tracking expenses by location, you can't optimize office costs.

How to fix it: Periodically review your categories to ensure they align with your actual products, services, and operations. This doesn't mean changing your structure every month. Schedule a quarterly or annual review and make intentional adjustments.

Lack of standardization across departments

As you grow and add team members, inconsistent naming and coding practices create problems. If the marketing team names accounts "Facebook Ads" but the finance team codes them under "Paid Advertising," transactions get split across multiple accounts, making it hard to see true spending on advertising.

How to fix it: Create clear guidelines for how accounts are named and coded. Document these guidelines. Train all team members who interact with your accounting system. Use software that enforces your naming conventions or provides drop-downs to prevent variations.

A well-structured chart of accounts is foundational to running a financial operation that scales with your business. It's the difference between chaos at tax time and confidence in your financial position. It's the difference between securing a loan and being denied. It's the difference between understanding where your money goes and wondering where it disappeared.

And when you pair a strong chart of accounts with the right tools, everything becomes simpler. With Brex's accounting automation, you can move beyond manual GL coding and reporting. Receipts automatically map to the correct account based on your chart of accounts structure. Transactions flow directly from capture to your general ledger. Real-time reporting lets you see your financial position instantly, not weeks later during close.

Get started with Brex today and see how our spend platform can turn your chart of accounts from a compliance checkbox into a strategic advantage for your finance team.