Chart of accounts

Published Thursday 23 July 2026

Table of contents

• Chart of accounts definition
• The 5 types of accounts in a chart of accounts
• How a chart of accounts is organized
• How to set up a chart of accounts
• Why a chart of accounts matters for your business
• Example of chart of accounts categories
• Simplify your chart of accounts with Xero
• FAQs on chart of accounts
• Related terms
• Learn more about chart of accounts

Key takeaways

• A chart of accounts is a list of every account you use to record financial transactions in your general ledger.
• It groups your accounts into 5 main types: assets, liabilities, equity, revenue, and expenses.
• Balance sheet accounts are listed first and income statement accounts second, with a code assigned to each account.
• A well-built chart of accounts keeps your records organized, so your reporting is clearer and your decisions are better informed.

Chart of accounts definition

A chart of accounts is a list of all the accounts you use to record financial transactions in your general ledger. It helps you track where your money comes from and where it goes.

Think of it like a map. It categorizes your transactions correctly and groups similar accounts together, so your bookkeeping, accounting, and financial reporting stay accurate.

The 5 types of accounts in a chart of accounts

Every chart of accounts is built around 5 main account types. Each type records a different part of your business finances.

• Asset accounts: record the things your business owns
• Liability accounts: record the debts your business owes
• Equity accounts: record the funds put into the business and any drawings by the owners
• Revenue accounts: record the money your business receives
• Expense accounts: record the money your business pays out

How a chart of accounts is organized

Your accounts follow a set order that mirrors your financial statements. The balance sheet accounts come first: assets, liabilities, and equity. The income statement accounts come second: revenue and expenses.

Each account gets a name, a short description, and a general ledger code that tells you where to record a transaction. These codes usually run in ranges, so assets sit in the 1000s, liabilities in the 2000s, equity in the 3000s, revenue in the 4000s, and expenses in the 5000s.

How to set up a chart of accounts

Setting up a chart of accounts is straightforward when you work through it in order. Start with the 5 account types, then add the sub-accounts that fit your assets and liabilities and the rest of your business.

1. List the 5 main account types: assets, liabilities, equity, revenue, and expenses.
2. Add sub-accounts under each type for the areas your business spends or earns money in.
3. Assign a name, a short description, and a general ledger code to each account.
4. Keep it simple to start with, since around 20 accounts is common for a small business.
5. Review it regularly and add accounts as your business grows.

Why a chart of accounts matters for your business

A clear chart of accounts is the foundation of tidy books. It shapes how easily you can record transactions, report on your finances, and make decisions.

Here's what a well-organized chart of accounts does for you.

• Keeps your records organized, so every transaction has a clear home
• Makes your reporting clearer, so you can see how each area of the business performs
• Simplifies recordkeeping, which matters because Canadian small businesses need to keep their records
• Supports better decisions, because you get an accurate picture of where money comes from and goes

To build on these habits, take a look at our guide to small business bookkeeping.

Example of chart of accounts categories

A simple example shows how the 5 main account types work in practice. The main types stay the same, while the sub-accounts underneath are customized to suit your business.

Within expenses, for instance, you could add sub-accounts for utilities, office expenses, and rent. Revenue might break down into product sales and service income, giving you a clearer view of each area that spends or makes money.

Simplify your chart of accounts with Xero

Xero brings your accounts, transactions, and reports together in one place, so your books stay organized without the manual admin. You can set up your chart of accounts, categorize transactions, and see how your business is tracking in real time.

Get started today and get one month free.

FAQs on chart of accounts

Here are answers to some frequently asked questions about chart of accounts to help you get set up with confidence.

Why is a chart of accounts important?

It gives your business a consistent structure for recording every transaction. That structure is what makes accurate reporting and reliable tax filing possible.

How many accounts should a chart of accounts have?

There's no fixed number, and around 20 accounts is common for a small business starting out. You can add more as your needs become more detailed.

Is there a standard chart of accounts format?

Most follow the same order of assets, liabilities, equity, revenue, and expenses, with numbered codes. The exact accounts and codes are yours to adjust to fit how your business works.

Is a chart of accounts required?

You aren't legally required to use one, but you do need to keep accurate financial records. A chart of accounts is the simplest way to keep those records organized and consistent.

Related terms

• General ledger
• Balance sheet
• Accounting equation
• Bookkeeping vs accounting

Learn more about chart of accounts

• Small business bookkeeping
• Small business accounting
• Guide to assets and liabilities
• How to read financial statements