What’s a Chart of Accounts? And Why Your Business Needs One
If you're a small business owner trying to stay on top of your finances, you’ve probably heard the term “chart of accounts” thrown around, especially if you're setting up QuickBooks, Xero, or chatting with your bookkeeper.
But what is it exactly? And do you really need one if you’re just starting out?
Short answer: Yes.
Longer answer: It’s the foundation of how your finances are organized…and it can save you time, stress, and money.
Let’s break down what a chart of accounts for small business actually is, why it matters, and how to set one up (without the overwhelm).
📚 What Is a Chart of Accounts?
A chart of accounts (COA) is simply a list of categories that your business uses to classify every financial transaction. It’s like the filing cabinet for your money: organizing everything from income and expenses to assets and liabilities.
Think of it as your business’s financial map. It helps you see:
Where your money is coming from
Where it’s going
What your business owns or owes
How profitable you really are
Each account has a name and a type, and it falls into one of these main categories:
Assets – what your business owns (bank accounts, inventory)
Liabilities – what you owe (credit cards, loans)
Equity – your business’s net worth
Income (Revenue) – how your business earns money
Expenses – what you spend to run your business
🧠 Why Your Business Needs a Chart of Accounts
You might be thinking: “Can’t I just track my income and expenses without setting up all these categories?”
Technically yes, but here’s why that’s not a great idea:
✅ 1. It Keeps You Organized (and Sanity Intact)
Without a COA, every transaction becomes a free-for-all. A proper chart lets you track every dollar with clarity and confidence.
✅ 2. It Makes Tax Time Way Easier
Your tax deductions (meals, software, advertising, mileage) need to be tracked by category. A solid COA helps you (or your CPA) pull clean records and maximize deductions.
✅ 3. It Helps You Make Smarter Decisions
Want to know if you’re spending too much on tools? Or which service brings in the most money? Your chart of accounts gives you the data you need to adjust, plan, and grow.
✅ 4. It’s Essential for Accounting Software
QuickBooks, Xero, and Wave all run on a chart of accounts. If you’re using software (which you should), a COA is the foundation.
💡 At Breakspears Bookkeeping Services LLC, we create and customize COAs that are tailored to your business, not just the default template.
🧾 What Does a Basic Chart of Accounts Look Like?
Here’s a simplified example of what a chart of accounts might look like for a freelance graphic designer:
Assets:
1000 – Business Checking Account
1010 – PayPal Account
1100 – Accounts Receivable
Liabilities:
2000 – Business Credit Card
2100 – Sales Tax Payable
Equity:
3000 – Owner’s Equity
3100 – Owner’s Draw
Income:
4000 – Design Services
4100 – Template Sales
4200 – Affiliate Income
Expenses:
5000 – Software Subscriptions
5100 – Advertising & Marketing
5200 – Office Supplies
5300 – Professional Services
5400 – Internet & Utilities
Each number and category serves a purpose. Once set up, every transaction you enter will be assigned to one of these accounts.
🛠️ How to Set Up a Chart of Accounts for Small Business
Start with a basic template.
Most accounting tools will give you one, don’t overcomplicate it.Customize based on your industry.
A fitness coach’s COA will look different from a photographer’s. Add or rename accounts as needed.Stay consistent.
Don’t change categories every month. Keep it simple and stick with it.Review and revise annually.
As your business grows, your chart of accounts should evolve too.
💡 Need help setting yours up? We offer custom chart of accounts creation and walkthroughs as part of our monthly packages.
🧠 Pro Tips from a Bookkeeper
Keep it lean: You don’t need 50+ categories. Too much detail becomes unmanageable.
Use sub-accounts sparingly for extra clarity (e.g., "Marketing" → "Social Ads," "Print Ads")
Reconcile regularly so nothing slips through the cracks
Review reports monthly to spot patterns or surprises
Use your COA to inform your budget and financial goals
💬 Final Thoughts: A Small Step That Makes a Big Difference
Your chart of accounts for small business might seem like a small, technical setup - but it’s actually one of the most powerful tools in your financial toolbox.
It helps you stay organized, make better decisions, prepare for taxes, and understand your money without the overwhelm. Whether you're just starting out or you're scaling fast, your COA gives structure to your success.
📌 Need Help Setting Up Your Chart of Accounts?
At Breakspears Bookkeeping Services, LLC, we help freelancers, creatives, and small business owners:
✅ Set up QuickBooks Online
✅ Build a custom chart of accounts
✅ Categorize transactions for clarity and compliance
👉 Explore our flat-fee bookkeeping packages
👉 Book a free 15-minute call to get your books set up the right way—right from the start.
