How Detailed Should a Chart of Accounts Be?
Your chart of accounts (COA) is the backbone of your bookkeeping system. It defines where every transaction in your business lands-revenue, expenses, assets, and liabilities.
Download Our Free Brochure →But when it comes to COA design, there’s a key question:
How much detail is too much? And how little is too little?
Let’s break down what small businesses need to know.
What Is a Chart of Accounts?
A chart of accounts is a categorized list of all your business accounts. These include:
- Assets (Cash, Accounts Receivable, Inventory)
- Liabilities (Credit Cards, Loans)
- Equity (Owner’s Draw, Retained Earnings)
- Income (Product Sales, Service Revenue)
- Expenses (Rent, Software, Payroll, Marketing)
Each of these categories can contain sub-accounts. The real decision lies in how many you use.
Too Simple vs. Too Complex
Too Simple = No Insight
If your COA only has a few general accounts like “Sales” or “Expenses,” you’ll have no visibility into what’s working (or not). Your P&L won’t guide business decisions.
Too Complex = Paralysis
On the flip side, if you create dozens of micro-accounts (e.g. “Office Snacks – Costco”), bookkeeping becomes messy and inconsistent.
Best Practices for Structuring Your COA
- Start with Core Categories
Use broad categories aligned with IRS tax lines or your CPA’s preferences. - Add Sub-Accounts Only Where It Helps
Split “Marketing” into “Digital Ads,” “Print,” and “Events” if you track ROI. But don’t add “Facebook Ads” unless it truly matters for decisions. - Avoid Vendor-Specific Accounts
Use “Software Subscriptions” rather than “Zoom,” “Slack,” or “Dropbox” individually. - Stay Consistent
Once you set a structure, stick to it. Constant changes cause confusion during tax time or financial review.
Test Case
Client: Startup e-commerce company
Initial COA: Over 100 expense accounts-each app and supplier had its own line.
Download Our Free Brochure →Problem: Their financial reports were unreadable, and tax prep was delayed.
RBO Solution: We consolidated their COA into 40 smart categories aligned to Schedule C.
Result: Clean financials, faster monthly closes, and a $900 reduction in tax prep fees.
FAQs
Should I mirror my chart of accounts to IRS categories?
It’s helpful but not required. Make sure your COA supports decision-making first, tax filing second.
How often should I update my COA?
Once a year is a good cadence-ideally with your CPA before tax season.
Can RemoteBooksOnline help fix my chart of accounts?
Yes! We clean up and streamline COAs for new clients as part of onboarding.
Conclusion
Your chart of accounts should be as detailed as it needs to be-no more, no less. The goal is clarity, not clutter.
Need help cleaning up your COA or setting up your books right?
RemoteBooksOnline specializes in catch-up, monthly, and QuickBooks bookkeeping-built around your business.
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