Chapter 2

How to set up a chart of accounts

Stepping up to do the bookkeeping in a new business? You may have to set up the chart of accounts. Let’s look at how.

A bookkeeper at a desk with a coffee cup and a laptop

What is the chart of accounts?

The chart of accounts sits just under the five main accounts in the general ledger. You can learn more about the main accounts in our chapter on double-entry bookkeeping.

An infographic showing the chart of accounts

A business can create as many sub-accounts as it needs to categorise its transactions. However there are some standard accounts that are typically used across most businesses.

What is the purpose of a chart of accounts?

A chart of accounts groups together transactions of a certain type. This allows you to produce detailed reports into specific areas of the business and its finances.

Standard chart of accounts

A standard chart might look like this:

A table detailing the chart of accounts categories

How is a chart of accounts used in accounting software?

The five core accounts are part of any accounting software and they’re the same for every business. The categories that sit beneath them in the chart of accounts can be customised to suit your business. For example, you might create several accounts for sales revenue – one for each region you trade in, or one for each department of your business.

When you enter a transaction into your software, it may ask you where to record the opposing credit or debit. Or you can teach the software where to make the opposing entry and it will happen automatically.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

How to do bookkeeping

Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.

Download the guide on how to do bookkeeping

Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.

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