Bookkeeping Basics
Chart of Accounts
The organized list of every account a company uses to record transactions — the index of its general ledger.
The chart of accounts (COA) is the master list of accounts your books can post to: assets, liabilities, equity, revenue, and expenses, each usually assigned a number range (1xxx assets, 2xxx liabilities, 3xxx equity, 4xxx revenue, 5xxx+ expenses). Every transaction your company records lands in one or more accounts from this list, so the COA directly determines what your financial statements can tell you.
A good COA is specific enough to be useful and small enough to maintain. Too few accounts and every expense piles into a single 'Miscellaneous' line that explains nothing; too many and reconciliation becomes a part-time job. The test is decision-grade: can you look at any line on the P&L and know what's driving it? If marketing spend is one number, you can't tell whether it's ads, tools, or events — and you can't manage what you can't distinguish.
Example
A typical startup COA: 1000 Cash, 1100 Accounts Receivable, 1200 Prepaid Expenses, 2000 Accounts Payable, 2100 Deferred Revenue, 3000 Common Stock, 4000 Subscription Revenue, 5000 Cloud Infrastructure, 5100 Salaries, 5200 Marketing. The Stripe payout posts to 1000 and 4000; the AWS bill posts to 5000 and 1000.
Common questions
How many accounts should my chart of accounts have?
As few as possible while keeping every material line explainable — most small companies run well with 30 to 80. Start tight, and split an account into sub-accounts only when you genuinely need to make a decision with the breakdown.
Should I change my chart of accounts after closing my books?
Adding accounts mid-year is fine and normal. Restructuring or renaming accounts in ways that break comparability with prior periods is not — that makes period-over-period analysis and historical reporting harder, so changes to the structure itself are best made at a year boundary with your accountant.
Practice this in the game
Accrual World turns concepts like these into playable drills. Pick the account, pick debit or credit, and get instant feedback. Free, no signup.
Play now