Small business guide

Chart of accounts explained: the list every book is built on.

The chart of accounts is the list of categories your bookkeeping uses. Set it up once and every report gets easier to read.

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What it is

Each transaction you record goes into one account. The chart of accounts is the complete list of those accounts, grouped into assets, liabilities, equity, income and expenses.

A simple starting chart

Group	Example accounts
Assets	Business checking, accounts receivable, inventory, equipment
Liabilities	Credit card, accounts payable, loans, sales tax payable, payroll liabilities
Equity	Owner contributions, owner draws, retained earnings
Income	Product sales, service revenue, other income
Expenses	Cost of goods sold, rent, payroll, insurance, marketing, utilities, supplies, software, repairs

Keep it simple

Start with fewer than thirty accounts

Use clear names that you will recognize in a year

Do not create a new account for every vendor

Add an account only when you want a separate report on it

Change it carefully

Renaming an account is easy. Merging or deleting accounts that already have transactions needs care, because history and reports change. If your accountant prepares your taxes, ask them how they want expenses grouped.

How this helps when you apply for funding

Clean books make a funding review faster, because the numbers a funder reads in your bank statements match what you can explain. We fund from $25,000 to $5,000,000, decisions move fast, and funding can arrive in as little as 24 hours for qualified businesses. We read about three months of business bank statements, consider owners with a FICO score of 500 or above, and sole proprietors can apply.

See bookkeeping habits that make funding easier and the financial statements funders want, then start your application. It takes about five minutes and begins with a soft credit pull.

Common questions

Can I use the default chart in my software?

Yes. Defaults are a good start. Remove what you do not use and rename what is unclear.

How many accounts do I need?

Most small businesses work well with a short list. Too many accounts make reports harder to read.

What is the difference between COGS and operating expenses?

Cost of goods sold covers direct costs of what you sell. Operating expenses are the costs of running the business.

Should owner pay be an expense?

Owner draws are not an expense. Payroll for an owner who is an employee may be. Ask your accountant.

Does this matter for funding?

It makes your records easier to explain. Funders mostly read bank statements.