The chart of accounts (COA) is the organizational structure of a business’s financial records. Every transaction — every sale, purchase, payment, and transfer — is recorded in one or more accounts. The COA is the master list of those accounts, grouped into five categories:
- Assets (what the business owns): Cash, accounts receivable, inventory, equipment, prepaid expenses
- Liabilities (what the business owes): Accounts payable, loans, credit card balances, sales tax payable, payroll taxes payable
- Equity (owner’s stake): Owner’s capital, owner’s draws, retained earnings
- Revenue (money earned): Food sales, beverage sales, catering revenue, merchandise
- Expenses (money spent): Cost of goods sold, rent, utilities, wages, insurance, marketing, depreciation
The COA should have enough accounts to produce useful reports — separating food cost from beverage cost, for example, so you can track gross margin by category — but not so many that transactions are frequently miscategorized. A small business typically needs 30–50 accounts. More than that usually means accounts are too granular to be useful.
Each account has a number (assets: 1000s, liabilities: 2000s, equity: 3000s, revenue: 4000s, expenses: 5000s–7000s) that determines where it appears on financial statements. The COA is set up during initial bookkeeping configuration and refined over the first few months of operation. See Accounting Software Setup and Automation for practical COA setup.