What is the Standard Chart of Accounts?
The Chart of Accounts (COA) is the backbone of every bookkeeping system. Whether you’re using QuickBooks, Xero, or Excel, your chart of accounts provides a structured way to classify financial transactions – making it easier to track income, expenses, assets, and liabilities.
If you’re new to business accounting or setting up your books for the first time, understanding the standard COA is essential.
What Is a Chart of Accounts?
A chart of accounts is a categorized list of every account used to record transactions in your business. Each account in the COA has a name, number, and type (asset, liability, equity, income, or expense).
Think of it as a map of your finances – each transaction you make will be recorded under one of these accounts.
What Are the Main Components of a Standard COA?
A standard COA includes five major categories:
- Assets
Accounts that represent what your business owns – such as cash, inventory, or accounts receivable. - Liabilities
What your business owes – including credit card balances, loans, or unpaid bills. - Equity
The owner’s stake in the business after subtracting liabilities from assets. - Income (Revenue)
Money earned from products or services you sell. - Expenses
Costs of operating the business – including rent, payroll, software, and supplies.
Each of these categories may include dozens of sub-accounts depending on your business structure.
Example of a Basic Chart of Accounts
| Account Number | Account Name | Type |
|---|---|---|
| 1000 | Cash | Asset |
| 1100 | Accounts Receivable | Asset |
| 2000 | Accounts Payable | Liability |
| 3000 | Owner’s Equity | Equity |
| 4000 | Sales Revenue | Income |
| 5000 | Rent Expense | Expense |
| 5100 | Utilities Expense | Expense |
| 5200 | Marketing Expense | Expense |
This numbering system helps organize and retrieve data efficiently, especially when generating financial reports.
Why Is the Chart of Accounts Important?
- Organization: Keeps your books clean and consistent
- Financial Clarity: Makes it easier to understand where your money comes from and where it’s going
- Accurate Reporting: Allows for detailed income statements, balance sheets, and cash flow reports
- Tax Prep: Speeds up the tax filing process by keeping income and expenses clearly categorized
- Audit Readiness: Ensures your financials can be easily reviewed if needed
How Is It Used in Bookkeeping?
Each time a transaction occurs – such as a payment to a vendor or a sale to a customer – it’s recorded under one or more accounts in the chart of accounts.
For example, if you receive a $2,000 payment from a client:
- Debit: Cash (Asset)
- Credit: Sales Revenue (Income)
Your chart of accounts provides the structure for all journal entries and is what your bookkeeping service uses to keep your records organized and compliant.
Industry-Specific COA Customizations
Different industries require unique COA structures. For example:
- Construction companies may need accounts for subcontractor costs, permits, and job costing.
- Law firms may use trust accounting and need to track client retainers separately.
- E-commerce businesses often track merchant fees, refunds, shipping costs, and COGS by product category.
RemoteBooksOnline offers customized setup for your chart of accounts based on your business type and industry.
Test Case: COA Setup for a Real Estate Broker
Business: Independent real estate brokerage
Challenge: Broker was using a generic COA with no clarity on commissions, license fees, or marketing spend.
Solution: RemoteBooksOnline set up a custom chart of accounts with subcategories for:
- Buyer-side and seller-side commissions
- Referral fees
- Marketing (print, online, open houses)
- Licensing and compliance expenses
Outcome:
- Clear monthly income tracking by deal type
- Better visibility into marketing ROI
- Simplified tax prep due to clean categorization
Frequently Asked Questions
Can I use a template to create my COA?
Yes, but it should be tailored to your business. Templates are a good starting point, but customization is key for accuracy.
Does the COA change over time?
It can. As your business grows or diversifies, new accounts may be added and others may be consolidated. A bookkeeper can manage this process for you.
Is a COA required for tax filing?
While not mandatory, having a COA makes it significantly easier to prepare accurate tax returns.
How many accounts should I have?
There’s no fixed number. Small businesses typically use 30-60 accounts. It’s more important to ensure accounts are relevant and not overly complex.
Who should set up my COA?
Ideally, a bookkeeper or accountant should set up and maintain your COA to avoid errors and duplicate categories. RemoteBooksOnline includes COA setup as part of our onboarding.
Keep Your Books Organized from Day One
Whether you’re just launching your business or trying to clean up messy books, a clear chart of accounts makes all the difference. RemoteBooksOnline can help you build a custom COA that fits your industry and integrates seamlessly into your bookkeeping system.
Explore our monthly bookkeeping services or request a free trial today to get started with clean, organized books.
