What is a chart of accounts?
Your startup’s chart of accounts (COA) is like a roadmap to your financial data. A chart of accounts is a comprehensive list of all the accounts (assets, liabilities, equity, revenue, and expenses) used by your startup to record financial transactions in your startup’s general ledger. Your general ledger is the central repository of all your company’s financial information, down to the smallest expense.
Your chart of accounts tells you where to record each transaction in your general ledger, and also tells you how to look up those transactions later. That means the COA is the backbone of your accounting system, providing a systematic way to organize, categorize, and track your financial activities.
Founder & CEO, Kruze Consulting
Charts of accounts can change based on business sector
The chart of accounts is a structured list of all the accounts and categories used by a business to record financial transactions. While every COA typically includes assets, liabilities, equity, revenues, and expenses, the specific accounts and categories within a chart of accounts can vary based on the type of business due to differences in operations, industries, and reporting requirements.
Why is your startup’s chart of accounts important?
Your chart of accounts is critical to good bookkeeping and financial management. The COA allows you to sort and categorize all your startup’s transactions during a specific period. Once you’ve separated your revenue, assets, liabilities, and expenses, you can see how effective the different areas of your business are.
Your chart of accounts helps you with:
- Financial reporting. A well-structured COA facilitates accurate and standardized financial reporting. It provides your stakeholders with insights into the financial health of the business, aiding in your decisions and strategic planning.
- Budgeting and forecasting. By categorizing and reviewing expenses and revenues, your business can effectively budget and forecast future financial performance. This helps you set realistic goals and monitor your progress over time.
- Compliance and taxation. A properly maintained chart of accounts helps make sure that your company is in compliance with regulatory requirements, and simplifies the tax filing process. It also provides a clear audit trail, minimizing the risk of errors or discrepancies.
- Analysis and insights. With a detailed COA, your business can conduct in-depth financial analysis and gain valuable insights, like identifying cost-saving opportunities or evaluating the profitability of your product.
- Audit trail. Using the chart of accounts, businesses can quickly identify any discrepancies in their financial statements, helping them investigate and correct problems.
Another important point about your chart of accounts is that they are generally standardized across businesses. While individual companies may have some additional account types that are specific to that industry (more on that below), the main categories are used by all businesses. That makes it easy for an accountant or financial professional to come into your business and quickly understand your finances.
Building a chart of accounts
The basic framework of a chart of accounts is consistent across businesses. However, you’ll have to tailor your COA to the specific needs and structure of your startup. Your COA will consist of the accounts you’ve identified and added to your general ledger for recording transactions. Here are some steps that we follow to create a customized COA for startup clients:
- Understanding your business. We analyze the nature of your business operations, revenue streams, and the expense categories you use, to make sure your COA is aligned with your company’s goals.
- Creating hierarchy and structure. We establish a logical hierarchy and structure for your accounts, balancing the need for detail with the ease of use.
- Build in flexibility. We anticipate future growth and changes in your business environment, and design the COA with scalability and flexibility in mind.
A typical chart of accounts consists of several components:
- Account Code. Each account is assigned a unique numerical or alphanumeric code for easy identification and reference.
- Account Name. This is a brief description of the account, providing clarity on its purpose and contents.
- Account Type. Accounts are categorized into different types such as assets, liabilities, equity, revenue, and expenses, enabling proper classification of financial transactions.
- Sub-Accounts. Some accounts may have sub-accounts for further granularity and detail. For example, under the “Expenses” category, you might have sub-accounts like “Advertising Expenses,” “Utilities,” etc.
Your accounts will typically be listed in the order that they appear in your financial statements. Normally balance sheet accounts, including assets and liabilities, are listed first. Accounts that feed into your income statement will come next, including revenue and expense accounts.
While COAs can be flexible to fit the needs of your individual business, most organizations use a common numerical scheme to identify accounts. The first digit of the account number indicates which of the main groups the account is grouped under.
| 1000 - 1999 | 2000 - 2999 | 3000 - 3999 | 4000 - 4999 | 5000 - 5999 |
|---|---|---|---|---|
| Assets | Liabilities | Equity | Income or Revenue | Expenses |
These broad categories correspond to the requirements for two financial statements, the balance sheet and income statement. The balance sheet uses assets, liabilities, and equity, while the income statement relies on income/revenue and expenses.
The common numbering system helps to find and reference specific accounts. The numbering system can vary for individual companies, but they generally follow the standard convention noted above.
At Kruze, we’ve expanded on those basic categories to better serve our clients and provide more detailed information. We use a six-digit numbering system, which allows us to create more unique accounts in each category, to capture more information.
| Current Assets | 100000 - 199999 |
| Liabilities | 200000 - 299999 |
| Equity | 300000 - 399999 |
| Sales | 400000 - 499999 |
| Cost of Good Sold | 500000 - 599999 |
| Sales, General, and Administrative Expenses | 600000 - 699999 |
| Research & Development Expenses | 700000 - 799999 |
| Other Operating Expenses | 800000 - 899999 |
| Other Income / Expenses | 900000 - 999999 |
Under these accounts, you’ll find sub-accounts that roll up into the main asset category. Let’s look at a more detailed breakdown of some of the Asset category for a startup with three different checking accounts.
| Account Number | Account / Subaccount Name | Parent Account Number | Parent Account Name | Details |
|---|---|---|---|---|
| 100000 | Current Assets | N/A | N/A | N/A |
| 101000 | Bank Account 1 | 100000 | Current Assets | Checking |
| 102000 | Bank Account 2 | 100000 | Current Assets | Checking |
| 103000 | Bank Account 3 | 100000 | Current Assets | Checking |
All of the checking accounts have unique account numbers beginning with the digit 1 to indicate they are assets. They are grouped under Current Assets with the parent account number noted in the COA. It’s easy to see what type of account each listing is and what group each record belongs to.
What items go into the COA categories?
The basic categories noted above are the ones that most startups will want to include in their charts of accounts, along with other categories tailored to your business. Let’s look at each category in more detail.
Remember, these lists aren’t comprehensive; your startup may have other categories based on the type of business it conducts.
Assets are the funds that your startup has on hand, any funds owed to you, and any property your startup owns. Some examples are:
- Cash (main checking account).
- Cash for payroll.
- Marketable securities, like Treasury bills.
- Savings accounts.
- Prepaid expenses.
- Accounts receivable, which is money owed to you by customers for your products or services.
- Property your company owns, like equipment, vehicles, and real estate, but also intangibles like patents or trademarks.
- Inventory, which includes products you have ready for sale but also pre-paid materials, supplies, and parts.
Liabilities are money that your startup owes or are due for payment. Examples include:
- Accounts payable, which are normally funds that you owe to vendors or contractors.
- Customer down payments and deposits.
- Company credit cards.
- Business loans or debt.
- Income and sales taxes payable.
- Depreciation.
Equity is the value of your startup after you deduct all the liabilities from the assets. You’ll see it represented by the balance sheet formula: Assets - Liabilities = Shareholders’ Equity. Not that this is an accounting definition (it’s actually called the “accounting equation”) but it’s not equal to the valuation that VCs put on your business when they invested equity. Examples of items in this category include: :
- Common stock.
- Preferred stock.
- Retained earnings.
Income or revenue is the money you generate from business activities, like:
- Sales of your product or service.
- Interest income from bank accounts or other investments.
- Sales returns and allowances.
- Grant revenue for certain businesses.
- Fees earned.
Expenses are often divided into direct and indirect expenses. Direct expenses feed into your cost of goods sold (COGS) are linked to a specific cost object (any item for which costs are being separately measured). Direct expenses include items like:
- Labor costs like salaries, employee benefits, and any employment taxes your company is responsible for.
- Material costs such as parts or raw materials you need to build your product.
- Subcontractor or non-employee expenses that are required for your product or service.
- Equipment cost, including both equipment your startup owns and rents.
Indirect expenses, also known as selling, general, and administrative (SG&A) expenses or overhead, are expenses that are associated with your entire business, and can’t be attributed to a cost object. These expenses can include:
- Administrative costs including labor and administrative software.
- Office expenses like rent or office supplies.
- Taxes including income and sales taxes.
- Insurance like liability, workers compensation, and automotive.
Managing your chart of accounts
The process of recording a startup’s financial transactions is known as bookkeeping. Each specific transaction is recorded in an account created for that type of transaction. The individual accounts make up your company’s general ledger, a comprehensive listing of every transaction.
The first step in bookkeeping is entering transactions in a journal. This is a chronological record of every transaction. After a transaction is recorded in a journal, those amounts are posted to the appropriate accounts.
Transactions are recorded using the double-entry accounting system, with each transaction having an equal and opposite effect in at least two different accounts. Called debits and credits, debits increase asset accounts or decrease liability accounts. Credits increase liability accounts and decrease asset accounts. Debits and credits must always balance.
For a simple example, let’s assume your startup issues an invoice to a customer for $10,000. Your accountant will record the $10,000 as a debit to your accounts receivable (an asset account). At the same time, your accountant will record a $10,000 credit in your revenue account. When your customer pays your invoice, the accountant records a $10,000 credit in accounts receivable, and a $10,000 debit in your cash accounts. All the credits and debits balance.
Sample chart of accounts
A chart of accounts that’s compatible with generally accepted accounting principles (GAAP) contains all the information needed for your startup’s balance sheet (assets, liabilities, and equity) and the income/profit and loss statement (income/revenue and expenses). Along with unique account numbers, each account is assigned a name.
As your startup grows, you may need to make changes to your chart of accounts. You might want to add an account because you just started using a new credit card. Or you might want to delete an account because you’re not using it any longer. It’s okay to add an account to the COA during the year, but you shouldn’t delete any accounts until your books are closed at the end of the year.
The following table includes the standard chart of accounts that Kruze uses for our clients. This COA is customized based on the individual company and the industry it serves. For example, a SaaS company’s chart of accounts could include Software Subscription Revenue under the Income parent account category.
| Account Number | Account / Subaccount Name | Parent Account Number | Parent Account Name | Details |
| 100000 | Current Assets | N/A | N/A | N/A |
| 101000 | Bank Escrow | 100000 | Current Assets | Checking |
| 102000 | Bank Operating | 100000 | Current Assets | Checking |
| 103000 | Online Payments | 100000 | Current Assets | Cash on hand |
| 104000 | Bank Checking 1 | 100000 | Current Assets | Checking |
| 105000 | Bank Checking 2 | 100000 | Current Assets | Checking |
| 106000 | Money Market 1 | 100000 | Current Assets | Checking |
| 107000 | Checking 3 | 100000 | Current Assets | Checking |
| 111000 | Invoicing Money Out Clearing | 100000 | Current Assets | Checking |
| 112000 | Invoicing Money In Clearing | 100000 | Current Assets | Checking |
| 120000 | Accounts Receivable | 100000 | Current Assets | Accounts Receivable (A/R) |
| 130000 | Other Current Assets | 100000 | Current Assets | Other Current Assets |
| 131000 | Prepaids | 100000 | Current Assets | Prepaid Expenses |
| 131100 | Prepaid Expenses | 100000 | Current Assets | Prepaid Expenses |
| 131200 | Prepaid Rent | 100000 | Current Assets | Prepaid Expenses |
| 132000 | Payroll Receivable | 100000 | Current Assets | Other Current Assets |
| 133000 | Clearing Account | 100000 | Current Assets | Other Current Assets |
| 133100 | Clearing Account 1 | 100000 | Current Assets | Other Current Assets |
| 133200 | Clearing Account 2 | 100000 | Current Assets | Other Current Assets |
| 133300 | Other Clearing | 100000 | Current Assets | Other Current Assets |
| 134000 | Deferred Cost of Revenue | 100000 | Current Assets | Other Current Assets |
| 135000 | Deferred Refunds & Discounts | 100000 | Current Assets | Other Current Assets |
| 136000 | Accrued Revenue | 100000 | Current Assets | Other Current Assets |
| 137000 | Loan to Shareholder | 100000 | Current Assets | Other Current Assets |
| 138000 | Undeposited Funds | 100000 | Current Assets | Undeposited Funds |
| 150000 | Fixed Assets | 100000 | Current Assets | Depletable Assets |
| 151000 | Furniture & Fixtures | 100000 | Current Assets | Fixed Asset Furniture |
| 152000 | Computers | 100000 | Current Assets | Fixed Asset Computers |
| 153000 | Office Equipment | 100000 | Current Assets | Fixed Asset Copiers |
| 154000 | Machinery & Equipment | 100000 | Current Assets | Machinery & Equipment |
| 155000 | Autos & Trucks | 100000 | Current Assets | Vehicles |
| 156000 | Building | 100000 | Current Assets | Buildings |
| 157000 | Land | 100000 | Current Assets | Land |
| 158000 | Leasehold Improvements | 100000 | Current Assets | Leasehold Improvements |
| 159000 | Accumulated Depreciation | 100000 | Current Assets | Accumulated Depreciation |
| 160000 | Intangible Assets | 100000 | Current Assets | Intangible Assets |
| 161000 | Domain | 100000 | Current Assets | Intangible Assets |
| 162000 | Trademarks | 100000 | Current Assets | Intangible Assets |
| 163000 | Patents | 100000 | Current Assets | Intangible Assets |
| 164000 | Intangible Asset 1 | 100000 | Current Assets | Intangible Assets |
| 165000 | Intangible Asset 2 | 100000 | Current Assets | Intangible Assets |
| 169000 | Accumulated Amortization | 100000 | Current Assets | Accumulated Amortization |
| 170000 | Accumulated Depreciation | 100000 | Current Assets | Other fixed assets |
| 170000 | Other Assets | 100000 | Current Assets | Other Long-term Assets |
| 171000 | Security Deposit | 100000 | Current Assets | Security Deposits |
| 172000 | Interest Receivable | 100000 | Current Assets | Other Long-term Assets |
| 200000 | Liabilities | N/A | N/A | N/A |
| 210000 | Accounts Payable | 200000 | Liabilities | Accounts Payable (A/P) |
| 220000 | Credit Cards | 200000 | Liabilities | Credit Card |
| 221000 | Credit Card 1 | 200000 | Liabilities | Credit Card |
| 222000 | Credit Card 2 | 200000 | Liabilities | Credit Card |
| 223000 | Credit Card 3 | 200000 | Liabilities | Credit Card |
| 224000 | Credit Card 4 | 200000 | Liabilities | Credit Card |
| 225000 | Credit Card 5 | 200000 | Liabilities | Credit Card |
| 230000 | Other Current Liabilities | 200000 | Liabilities | Other Current Liabilities |
| 231000 | 401(k) Payable | 200000 | Liabilities | Other Current Liabilities |
| 232000 | Loan from Shareholder | 200000 | Liabilities | Other Current Liabilities |
| 233000 | Payroll Liabilities | 200000 | Liabilities | Payroll Clearing |
| 234000 | Payroll Tax Liabilities | 200000 | Liabilities | Payroll Tax Payable |
| 235000 | Accruals | 200000 | Liabilities | Other Current Liabilities |
| 235100 | Accrued Expenses | 200000 | Liabilities | Other Current Liabilities |
| 235200 | Accrued Rent | 200000 | Liabilities | Other Current Liabilities |
| 235300 | Accrued Vacation | 200000 | Liabilities | Other Current Liabilities |
| 235400 | Employee Reimbursement Liability | 200000 | Liabilities | Other Current Liabilities |
| 236000 | Taxes Payable | 200000 | Liabilities | Other Current Liabilities |
| 236100 | Sales Tax Payable | 200000 | Liabilities | Other Current Liabilities |
| 236200 | Use Tax Payable | 200000 | Liabilities | Other Current Liabilities |
| 236300 | SF Tax Payable | 200000 | Liabilities | Other Current Liabilities |
| 237000 | Deferred Revenue | 200000 | Liabilities | Other Current Liabilities |
| 238000 | Sublease Deposit & Prepaid Rent | 200000 | Liabilities | Other Current Liabilities |
| 240000 | Long Term Liabilities | 200000 | Liabilities | Other Long Term Liabilities |
| 241000 | Notes / Bonds Payable | 200000 | Liabilities | Notes Payable |
| 242000 | Accrued Interest | 200000 | Liabilities | Notes Payable |
| 300000 | Equity | N/A | N/A | N/A |
| 301000 | Common Stock | 300000 | Equity | Common Stock |
| 301001 | Common Stock - Par Value | 300000 | Equity | Common Stock |
| 301002 | Common Stock - Additional Paid-In Capital (APIC) | 300000 | Equity | Common Stock |
| 320000 | Preferred Stock | 300000 | Equity | Preferred Stock |
| 320000 | Series Seed: Preferred Stock | 300000 | Equity | Series Seed |
| 320000 | Series Seed: Preferred Stock - Par Value | 300000 | Equity | Series Seed |
| 320000 | Preferred Stock: Series Seed - Additional Paid-In Capital (APIC) | 300000 | Equity | Series Seed |
| 320000 | Preferred Stock: Series Seed - Financing Costs | 300000 | Equity | Series Seed |
| 320000 | Preferred Stock: Series A | 300000 | Equity | Preferred Stock |
| 320000 | Preferred Stock: Series A - Par Value | 300000 | Equity | Series A |
| 320000 | Preferred Stock: Series A - Additional Paid-In Capital (APIC) | 300000 | Equity | Series A |
| 320000 | Preferred Stock: Series A - Financing Costs | 300000 | Equity | Series A |
| 320000 | Preferred Stock: Series B | 300000 | Equity | Preferred Stock |
| 320000 | Preferred Stock: Series B - Par Value | 300000 | Equity | Series B |
| 320000 | Preferred Stock: Series B - Additional Paid-In Capital (APIC) | 300000 | Equity | Series B |
| 320000 | Preferred Stock: Series B - Financing Costs | 300000 | Equity | Series B |
| 330000 | Treasury Stock | 300000 | Equity | Treasury Stock |
| 340000 | SAFE Notes | 300000 | Equity | Preferred Stock |
| 400000 | Sales | N/A | N/A | N/A |
| 401000 | Product 1 | 400000 | Sales | Sales of Product Income |
| 402000 | Product 2 | 400000 | Sales | Sales of Product Income |
| 403000 | Product 3 | 400000 | Sales | Sales of Product Income |
| 404000 | Discounts | 400000 | Sales | Discounts/Refunds Given |
| 405000 | Refunds | 400000 | Sales | Discounts/Refunds Given |
| 500000 | Cost of Goods Sold | N/A | N/A | N/A |
| 501000 | Direct Labor | 500000 | Cost of Goods Sold | Cost of Labor - Cost of Services (COS) |
| 502000 | Direct Parts & Materials | 500000 | Cost of Goods Sold | Supplies & Materials - Cost of Goods Sold (COGS) |
| 502001 | Direct Parts & Materials: Mechanical | 500000 | Cost of Goods Sold | Other Costs of Services (COS) |
| 502002 | Electrical | 500000 | Cost of Goods Sold | Other Costs of Services (COS) |
| 503000 | Freight & Delivery | 500000 | Cost of Goods Sold | Shipping - Cost of Services (COS) |
| 504000 | Overhead Allocation | 500000 | Cost of Goods Sold | Other Costs of Services (COS) |
| 505000 | Hosting Fees | 500000 | Cost of Goods Sold | Other Costs of Services - COS |
| 600000 | Sales, General, and Administrative (SGA) Expenses | N/A | N/A | N/A |
| 601000 | Sales & Marketing | 600000 | SGA Expenses | Advertising/Promotional |
| 601300 | Sales & Marketing: Paid Ads | 600000 | SGA Expenses | Advertising/Promotional |
| 601400 | Sales & Marketing: Promotional Items | 600000 | SGA Expenses | Advertising/Promotional |
| 601500 | Sales & Marketing: Conferences | 600000 | SGA Expenses | Advertising/Promotional |
| 601600 | Sales & Marketing: Sales Commission | 600000 | SGA Expenses | Advertising/Promotional |
| 602000 | Payroll Expense | 600000 | SGA Expenses | Payroll Expenses |
| 602100 | Wages | 600000 | SGA Expenses | Payroll Expenses |
| 602102 | Bonuses | 600000 | SGA Expenses | Payroll Expenses |
| 602103 | Vacation Expense | 600000 | SGA Expenses | Payroll Expenses |
| 602104 | Payroll Taxes | 600000 | SGA Expenses | Payroll Expenses |
| 602105 | Employee Benefits | 600000 | SGA Expenses | Payroll Expenses |
| 602106 | Workers’ Compensation | 600000 | SGA Expenses | Payroll Expenses |
| 602200 | Payroll Expense - International | 600000 | SGA Expenses | Payroll Expenses |
| 602201 | Wages - International | 600000 | SGA Expenses | Payroll Expenses |
| 602202 | Payroll Taxes - International | 600000 | SGA Expenses | Payroll Expenses |
| 602203 | Employee Benefits - International | 600000 | SGA Expenses | Payroll Expenses |
| 602300 | Payroll Processing Fees | 600000 | SGA Expenses | Payroll Expenses |
| 603000 | Software & Web Services | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 604000 | Professional Fees | 600000 | SGA Expenses | Legal & Professional Fees |
| 604100 | Professional Fees: Legal | 600000 | SGA Expenses | Legal & Professional Fees |
| 604200 | Professional Fees: Accounting | 600000 | SGA Expenses | Legal & Professional Fees |
| 604300 | Professional Fees: Recruiting | 600000 | SGA Expenses | Legal & Professional Fees |
| 604400 | Professional Fees: Contractors & Consultants | 600000 | SGA Expenses | Legal & Professional Fees |
| 605000 | Travel Expenses | 600000 | SGA Expenses | Travel |
| 606000 | Meals | 600000 | SGA Expenses | Travel |
| 607000 | Entertainment / Team Events | 600000 | SGA Expenses | Other Business Expenses |
| 608000 | Insurance Expense | 600000 | SGA Expenses | Insurance |
| 609000 | Office Furniture / Equipment | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 610000 | Office Supplies & General Expense | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 611000 | Telephone / Internet Expense | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 612000 | Utilities Expense | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 613000 | Bank Charges | 600000 | SGA Expenses | Bank Charges |
| 614000 | Rent Expense | 600000 | SGA Expenses | Rent or Lease of Buildings |
| 615000 | Gifts | 600000 | SGA Expenses | Office/General Administrative Expenses |
| 700000 | Research & Development (R&D) Expenses | N/A | N/A | N/A |
| 710000 | Direct Labor - R&D | 700000 | R&D Expenses | Other Business Expenses |
| 720000 | Machinery & Equipment | 700000 | R&D Expenses | Other Business Expenses |
| 730000 | Supplies | 700000 | R&D Expenses | Other Business Expenses |
| 740000 | Freight & Delivery - R&D | 700000 | R&D Expenses | Other Business Expenses |
| 750000 | Other Indirect Costs | 700000 | R&D Expenses | Other Business Expenses |
| 800000 | Other Operating Expenses | N/A | N/A | N/A |
| 810000 | Depreciation Expense | 800000 | Other Operating Expenses | Other Business Expenses |
| 820000 | Amortization Expense | 800000 | Other Operating Expenses | Other Business Expenses |
| 900000 | Other (Income) / Expenses | N/A | N/A | N/A |
| 901000 | Interest (Income) / Expense | 900000 | Other (Income) / Expenses | Other Miscellaneous Expense |
| 902000 | Taxes & Licenses | 900000 | Other (Income) / Expenses | Other Miscellaneous Expense |
| 902100 | R&D Tax Credit Income | 900000 | Other (Income) / Expenses | Other Miscellaneous Expense |
| 903000 | Bad Debt Expense | 900000 | Other (Income) / Expenses | Other Miscellaneous Expense |
| 904000 | Misc Other (Income) / Expenses | 900000 | Other (Income) / Expenses | Other Miscellaneous Expense |
A Chart of Accounts Can Guide Your Business Decisions
The chart of accounts is more than a list of numbers and names; it’s a powerful tool that drives financial transparency, efficiency, and strategic decision-making. For startup founders, a well-crafted chart of accounts is the cornerstone of sound financial management. For more information about charts of accounts and accounting for startups, contact us.
