What is Chart of Accounts?
Chart of accounts explained in plain English. Learn how to organize your business's financial accounts, what categories to include, and how it feeds into your bookkeeping.
What Is a Chart of Accounts?
A chart of accounts (COA) is a comprehensive, organized list of every financial account a business uses to record and categorize its transactions. It's the structural backbone of your entire accounting system — the index that sits at the front of your general ledger, organizing all your financial data into meaningful categories. Think of it like the filing cabinet of your business finances. Instead of tossing every financial document into one pile, you have labeled drawers: one for income, one for advertising expenses, one for your checking account, one for money owed by clients, and so on. Each account has a name and a number, and every transaction gets posted to one or more of these accounts. The chart of accounts follows the accounting equation's five core categories: 1. Assets — What you own (cash, equipment, accounts receivable) 2. Liabilities — What you owe (credit cards, loans, accounts payable) 3. Equity — Your ownership stake in the business 4. Revenue — Income from services and products 5. Expenses — Money spent to run the business
Standard Account Number Ranges
Most accounting software uses numeric ranges to group account types: | Range | Category | |---|---| | 1000–1999 | Assets | | 2000–2999 | Liabilities | | 3000–3999 | Equity | | 4000–4999 | Revenue | | 5000–9999 | Expenses | Within each range, you create specific accounts. For example: - 1000: Checking Account - 1100: Savings Account - 1200: Accounts Receivable - 1500: Computer Equipment
Example Chart of Accounts for a Freelance Designer
ASSETS (1000s) - 1000 — Checking Account - 1100 — Savings Account (tax reserve) - 1200 — Accounts Receivable - 1500 — Computer Equipment - 1510 — Furniture & Fixtures LIABILITIES (2000s) - 2000 — Credit Card (Business) - 2100 — Accounts Payable - 2200 — Sales Tax Payable EQUITY (3000s) - 3000 — Owner's Equity - 3100 — Retained Earnings REVENUE (4000s) - 4000 — Design Services Revenue - 4100 — Licensing Revenue - 4200 — Consulting Revenue EXPENSES (5000s) - 5000 — Advertising & Marketing - 5100 — Software & Subscriptions - 5200 — Office Supplies - 5300 — Professional Services (accountant, attorney) - 5400 — Travel & Entertainment - 5500 — Insurance - 5600 — Professional Development - 5700 — Bank Fees & Charges
How the Chart of Accounts Relates to Invoicing
When you send an invoice in Eonebill, the accounting system posts: - Debit to Accounts Receivable (Asset) — $3,000 - Credit to Revenue — $3,000 These accounts exist in your chart of accounts. A well-organized COA means your income statement (P&L) will show revenue broken down by category, not just one big number. This is crucial for tax time — IRS Schedule C asks you to categorize expenses into specific categories, and having a proper COA makes that effortless.
Tips for Freelancers
- Don't over-complicate it: 20–30 accounts is plenty for a freelance business - Map to tax categories: Align your expense accounts with IRS Schedule C line items - Review annually: Add accounts as your business evolves; remove ones you never use - Use sub-accounts: For example, you might have "Software & Subscriptions" as a main account with "Adobe CC," "Dropbox," and "Hosting" as sub-accounts Related reading: - General Ledger: The Master Financial Record → - Schedule C: Freelancer's Tax Form → - Balance Sheet Explained → Key Takeaways: 1. The chart of accounts is the index of all your financial accounts — organized by type 2. Five core types: Assets, Liabilities, Equity, Revenue, Expenses 3. Keep it lean — 20–30 accounts is enough for most freelancers 4. Align expense accounts with IRS Schedule C categories to simplify tax filing 5. A good chart of accounts makes bookkeeping fast and financial reports meaningful Organize your finances from day one — Try Eonebill Free