chart of accounts
A chart of accounts is the complete, structured list of all accounts an entity uses to record financial transactions. It assigns each account a name, a number, and a type (asset, liability, equity, revenue, or expense). The chart defines what the entity can track and report — an expense that doesn’t have its own account gets lumped into a broader category, invisible to anyone reviewing the financial statements.
Account numbering typically follows a convention that groups accounts by type:
| Range | Type | Examples |
|---|---|---|
| 1000–1999 | Assets | 1010 Cash, 1200 Accounts Receivable, 1500 Equipment |
| 2000–2999 | Liabilities | 2010 Accounts Payable, 2100 Loans Payable |
| 3000–3999 | Equity | 3010 Owner’s Equity, 3200 Retained Earnings |
| 4000–4999 | Revenue | 4010 Sales Revenue, 4200 Service Revenue |
| 5000–5999 | Expenses | 5010 Rent Expense, 5200 Wages Expense |
The numbering scheme varies between entities, but the principle is consistent: the number’s first digit or digits encode the account type, and gaps are left between numbers so new accounts can be inserted without renumbering.
A chart of accounts is an architectural decision. Too few accounts and the entity can’t see where its money goes. Too many and the system becomes unwieldy, with transactions routinely posted to the wrong account because the distinctions are too fine. The chart should reflect the level of detail the entity needs for decision-making and reporting — no more, no less.