Chart of accounts basics for small business
Your chart of accounts (COA) is the list of buckets every transaction gets sorted into. Get it right and your reports answer real questions; get it wrong and you drown in detail or hide what matters.
The five account types
Every account is one of five types, and they map to your two core reports:
- Assets — what you own (cash, AR, inventory, equipment).
- Liabilities — what you owe (AP, loans, credit cards).
- Equity — the owner's stake.
- Income/Revenue — what you earn.
- Expenses — what you spend to earn it.
Assets, liabilities, and equity form the balance sheet; income and expenses form the profit & loss.
How to structure it
Accounts are usually numbered by type so reports group automatically — a common scheme:
- 1000s — Assets
- 2000s — Liabilities
- 3000s — Equity
- 4000s — Income
- 5000s–6000s — Expenses
Leave gaps (1000, 1010, 1020…) so you can insert related accounts later without renumbering.
Don't over-engineer it
The most common mistake is too many accounts — a separate line for every vendor or tiny category. You end up with a report nobody reads. Rule of thumb: create an account only if you'd make a decision based on seeing it on its own line. Everything else rolls up. You can always split a category later; merging them back is harder.
Keep it consistent
A COA only works if transactions are coded the same way every time. Enforce it at entry with data-validation drop-downs, and summarize by account with SUMIFS or a PivotTable.
When you outgrow the spreadsheet
A real double-entry system keeps the COA, the postings, and the reports in sync automatically — that's the accounting suite built into IMS Made Simple, alongside inventory and scheduling.
General information, not accounting advice — confirm specifics with your accountant.