A chart of accounts for a small business is the list of categories every transaction gets sorted into, and it decides whether your profit and loss statement is readable or a wall of noise. Build it with about two dozen well-named accounts, number them so they can grow, and resist the urge to add a new one every time something unusual happens. This post shows you how, with a starter template you can copy into QuickBooks Online or Xero this afternoon.
Key takeaways
- The chart of accounts is a filing system, not a diary. Categories describe what a cost is for, not whom you paid.
- Five sections (assets, liabilities, equity, income, expenses) and a simple numbering scheme cover nearly every small business.
- Start with 20 to 25 accounts. Add one only when a report question needs it.
- Never delete an account with history. Rename, merge, or make it inactive instead.
What a chart of accounts does
Every transaction in your ledger has to land somewhere. The chart of accounts is the list of possible somewheres. When you categorize a $214 charge as “Office and Software,” you are choosing an account from that list, and your profit and loss statement is nothing more than those accounts totaled for a period.
That is why the design matters so much. Suppose you own a hypothetical plumbing company with three trucks doing $84,000 of work in a month. With a good chart, the profit and loss statement shows about fifteen lines: revenue of $84,000, job materials and subcontractors of $31,000, a gross profit of $53,000, and then a dozen operating expenses you can scan in thirty seconds. With a bad chart, the same month shows sixty lines, three different accounts that all mean “software,” a vendor name masquerading as a category, and a large “Miscellaneous” that nobody can explain. Same business, same money, but only one of those reports helps you run it.
The chart also determines how tax time goes. Your CPA maps each account to a line on the return, and a chart that already resembles the expense lines on Schedule C (or the equivalent on a corporate or partnership return) makes that mapping quick. If you are new to how the pieces fit together, the complete guide to small business bookkeeping is the wider context for everything here.
The five sections and a numbering scheme that scales
Every chart of accounts has the same five sections, in the same order, because they follow the accounting equation and the two reports built on it. Assets, liabilities, and equity live on the balance sheet. Income and expenses live on the profit and loss statement. If you have met Debi and Credi, you already know which side makes each section grow.
Numbering is optional in most software and worth doing anyway. The convention most bookkeepers use gives each section a thousand-number block:
- 1000s: Assets. Cash first, then receivables, then equipment and other long-lived things.
- 2000s: Liabilities. Bills you owe, credit cards, payroll and sales tax you have collected but not yet remitted, then loans.
- 3000s: Equity. What the owner put in, what the owner took out, and profit kept in the business.
- 4000s: Income. Your revenue lines, usually one to three of them.
- 5000s: Cost of goods sold. Costs that rise and fall directly with each job or sale.
- 6000s and 7000s: Operating and other expenses. Everything it costs to keep the doors open, plus interest and other non-operating items.
Leave gaps. Number in tens or hundreds (1000, 1010, 1200) rather than 1, 2, 3, so that a new account can slot in next to its relatives without renumbering anything. A chart that starts at 24 accounts and grows to 40 over five years should still read in order.
A starter chart of accounts
Here is a template that fits most service businesses and adapts easily to the rest. Copy it as is, then rename or trim to fit.
| Number | Account | Type |
|---|---|---|
| 1000 | Operating Checking | Asset |
| 1010 | Savings: Tax Reserve | Asset |
| 1200 | Accounts Receivable | Asset |
| 1500 | Equipment and Vehicles | Fixed asset |
| 1510 | Accumulated Depreciation | Fixed asset (contra) |
| 2000 | Accounts Payable | Liability |
| 2100 | Business Credit Card | Liability |
| 2300 | Payroll Liabilities | Liability |
| 2500 | Vehicle Loan | Long-term liability |
| 3000 | Owner Contributions | Equity |
| 3100 | Owner Draws | Equity |
| 3900 | Retained Earnings | Equity |
| 4000 | Service Revenue | Income |
| 5000 | Job Materials and Supplies | Cost of goods sold |
| 5100 | Subcontractors | Cost of goods sold |
| 6000 | Advertising and Marketing | Expense |
| 6100 | Insurance | Expense |
| 6200 | Office and Software | Expense |
| 6300 | Wages and Payroll Taxes | Expense |
| 6400 | Rent and Utilities | Expense |
| 6500 | Vehicle Fuel and Maintenance | Expense |
| 6600 | Meals | Expense |
| 6700 | Professional Fees | Expense |
| 6800 | Bank and Merchant Fees | Expense |
A few notes on why it looks the way it does. Meals get their own account because they are treated differently at tax time (generally 50 percent deductible, per IRS Publication 463), so mixing them into “Travel” or “Office” creates work for your CPA later. Owner Draws sits in equity, not expenses, because paying yourself is not a cost of running the business. And the tax reserve savings account is there so that setting money aside for taxes is a transfer you can see rather than a good intention.
Common mistakes
The mistakes are predictable, which makes them easy to avoid.
Too many accounts. An account per vendor is the classic one: “Amazon,” “Home Depot,” and “Costco” are not categories, and a month later you cannot tell whether those purchases were job materials, office supplies, or a new shop vac. Software already tracks the vendor. The account should say what the money was for. A similar trap is an account for every one-off (“Holiday Party 2026”), which is what memo fields are for.
Vague names. “Miscellaneous,” “Other,” and “General” are where categorization goes to die. If a cost genuinely fits nowhere, that is a signal to either widen an existing account’s name or add one specific account, not to open a junk drawer.
Mixing personal spending. Groceries on the business card are not an expense; they are an owner draw. Recording them as “Supplies” overstates your costs, understates your profit, and gives your CPA a cleanup job. The fix is a separate business account and card, then routing the occasional slip to Owner Draws.
Duplicates. “Software,” “Subscriptions,” and “SaaS” are the same thing three times. When you see two accounts that could plausibly hold the same transaction, merge them.
Skipping cost of goods sold. Service businesses often put everything in operating expenses, which hides the number that matters most: gross profit per job. If a cost only happens because you did a job (materials, subcontractors, direct labor), it belongs in the 5000s.
Customizing by industry
The starter chart is a skeleton. Different businesses put different weight on different sections, and our guide to bookkeeping by industry goes deeper on each.
Restaurants split cost of goods sold into food, beverage, and paper, and often break labor into front-of-house and back-of-house. Contractors and trades lean on job costing, tracking materials and labor by project through the software’s project or class feature rather than by adding dozens of accounts. E-commerce businesses need an inventory asset, shipping income and shipping expense, and merchant fees broken out by platform, since each takes a different cut. Professional services firms are mostly labor, so the interesting detail is in revenue lines: retainers, project fees, hourly work.
Franchisees have a special case. Your franchisor almost certainly requires a particular profit and loss format, with accounts for royalties, brand fund contributions, and technology fees, and it is far easier to build your chart to that format from day one than to translate every month. Our franchise chart of accounts template maps to the typical franchisor P&L and explains where your own local accounts fit around it.
Changing it later without wrecking history
You will want to change the chart eventually, and that is fine as long as you follow three rules.
First, never delete an account that has transactions in it. Deleting removes the history from every past report. Both QuickBooks Online and Xero let you make an account inactive instead, which hides it from menus while preserving the past; the step-by-step for each is on QuickBooks’ support site and Xero Central.
Second, prefer renaming and merging over adding. Renaming is harmless and instant. Merging two duplicates (both programs support this) moves the history into one account and is usually the right fix for the “three software accounts” problem. Adding an account should follow a real question you could not answer from the reports.
Third, make structural changes at a month or year boundary, and tell your CPA. A mid-month reshuffle makes that month’s reports hard to compare to the last one, and your CPA has a mapping from your accounts to your tax return that they will need to update. The handoff between the two roles is the subject of our bookkeeping vs. accounting post, and the chart of accounts is the single document they most need to agree on.
Frequently asked questions
How many accounts should a small business have?
Somewhere between 20 and 40 for most businesses under a few million in revenue. Fewer than 15 usually means important costs are lumped together; more than 50 usually means vendor names or one-off events have crept in as categories. The test is whether you can read your monthly profit and loss statement in under a minute.
Should I use the default chart of accounts in QuickBooks Online or Xero?
The defaults are a reasonable starting point but tend to include accounts you will never use and miss ones you need. A better approach is to import or build a trimmed chart like the one above during setup, before any transactions post. Our QuickBooks Online setup guide walks through that step in order.
Do account numbers matter?
Not to the software, which works fine without them. They matter to people. Numbers keep the chart in a logical order on every report, make it obvious which section a new account belongs to, and let a bookkeeper or CPA find things without hunting. Turn them on; it takes a minute.
Should my chart of accounts match my tax return?
It should map to it cleanly, which is different from matching it line for line. Your reports exist to help you run the business, so keep the categories that help you decide things. Just make sure each one rolls up unambiguously to a line your CPA files on, and avoid categories that would have to be split at tax time.
Where to go from here
Open your software, pull up the current chart, and compare it to the template. Merge the duplicates, rename anything vague, move personal items to Owner Draws, and turn on account numbers. That is usually an hour of work and it pays off on every report you run afterward.
If you would rather have someone set it up right the first time, or untangle a chart that has grown wild, that is what a BooXkeeping team is for. Our QuickBooks solutions cover setup, cleanup, and the monthly bookkeeping that keeps the chart tidy.
Reviewed for tax year 2026.
BooXkeeping is a bookkeeping company, not a CPA firm or a law firm. This article is general information for business owners, not tax, legal, or financial advice. Rules change and your situation is specific, so confirm anything here with your CPA or attorney before acting on it.
A chart of accounts for a small business is the list of categories every transaction gets sorted into, and it decides whether your profit and loss statement is readable or a wall of noise. Build it with about two dozen well-named accounts, number them so they can grow, and resist the urge to add a new one every time something unusual happens. This post shows you how, with a starter template you can copy into QuickBooks Online or Xero this afternoon.
Key takeaways
- The chart of accounts is a filing system, not a diary. Categories describe what a cost is for, not whom you paid.
- Five sections (assets, liabilities, equity, income, expenses) and a simple numbering scheme cover nearly every small business.
- Start with 20 to 25 accounts. Add one only when a report question needs it.
- Never delete an account with history. Rename, merge, or make it inactive instead.
What a chart of accounts does
Every transaction in your ledger has to land somewhere. The chart of accounts is the list of possible somewheres. When you categorize a $214 charge as “Office and Software,” you are choosing an account from that list, and your profit and loss statement is nothing more than those accounts totaled for a period.
That is why the design matters so much. Suppose you own a hypothetical plumbing company with three trucks doing $84,000 of work in a month. With a good chart, the profit and loss statement shows about fifteen lines: revenue of $84,000, job materials and subcontractors of $31,000, a gross profit of $53,000, and then a dozen operating expenses you can scan in thirty seconds. With a bad chart, the same month shows sixty lines, three different accounts that all mean “software,” a vendor name masquerading as a category, and a large “Miscellaneous” that nobody can explain. Same business, same money, but only one of those reports helps you run it.
The chart also determines how tax time goes. Your CPA maps each account to a line on the return, and a chart that already resembles the expense lines on Schedule C (or the equivalent on a corporate or partnership return) makes that mapping quick. If you are new to how the pieces fit together, the complete guide to small business bookkeeping is the wider context for everything here.
The five sections and a numbering scheme that scales
Every chart of accounts has the same five sections, in the same order, because they follow the accounting equation and the two reports built on it. Assets, liabilities, and equity live on the balance sheet. Income and expenses live on the profit and loss statement. If you have met Debi and Credi, you already know which side makes each section grow.
Numbering is optional in most software and worth doing anyway. The convention most bookkeepers use gives each section a thousand-number block:
- 1000s: Assets. Cash first, then receivables, then equipment and other long-lived things.
- 2000s: Liabilities. Bills you owe, credit cards, payroll and sales tax you have collected but not yet remitted, then loans.
- 3000s: Equity. What the owner put in, what the owner took out, and profit kept in the business.
- 4000s: Income. Your revenue lines, usually one to three of them.
- 5000s: Cost of goods sold. Costs that rise and fall directly with each job or sale.
- 6000s and 7000s: Operating and other expenses. Everything it costs to keep the doors open, plus interest and other non-operating items.
Leave gaps. Number in tens or hundreds (1000, 1010, 1200) rather than 1, 2, 3, so that a new account can slot in next to its relatives without renumbering anything. A chart that starts at 24 accounts and grows to 40 over five years should still read in order.
A starter chart of accounts
Here is a template that fits most service businesses and adapts easily to the rest. Copy it as is, then rename or trim to fit.
| Number | Account | Type |
|---|---|---|
| 1000 | Operating Checking | Asset |
| 1010 | Savings: Tax Reserve | Asset |
| 1200 | Accounts Receivable | Asset |
| 1500 | Equipment and Vehicles | Fixed asset |
| 1510 | Accumulated Depreciation | Fixed asset (contra) |
| 2000 | Accounts Payable | Liability |
| 2100 | Business Credit Card | Liability |
| 2300 | Payroll Liabilities | Liability |
| 2500 | Vehicle Loan | Long-term liability |
| 3000 | Owner Contributions | Equity |
| 3100 | Owner Draws | Equity |
| 3900 | Retained Earnings | Equity |
| 4000 | Service Revenue | Income |
| 5000 | Job Materials and Supplies | Cost of goods sold |
| 5100 | Subcontractors | Cost of goods sold |
| 6000 | Advertising and Marketing | Expense |
| 6100 | Insurance | Expense |
| 6200 | Office and Software | Expense |
| 6300 | Wages and Payroll Taxes | Expense |
| 6400 | Rent and Utilities | Expense |
| 6500 | Vehicle Fuel and Maintenance | Expense |
| 6600 | Meals | Expense |
| 6700 | Professional Fees | Expense |
| 6800 | Bank and Merchant Fees | Expense |
A few notes on why it looks the way it does. Meals get their own account because they are treated differently at tax time (generally 50 percent deductible, per IRS Publication 463), so mixing them into “Travel” or “Office” creates work for your CPA later. Owner Draws sits in equity, not expenses, because paying yourself is not a cost of running the business. And the tax reserve savings account is there so that setting money aside for taxes is a transfer you can see rather than a good intention.
Common mistakes
The mistakes are predictable, which makes them easy to avoid.
Too many accounts. An account per vendor is the classic one: “Amazon,” “Home Depot,” and “Costco” are not categories, and a month later you cannot tell whether those purchases were job materials, office supplies, or a new shop vac. Software already tracks the vendor. The account should say what the money was for. A similar trap is an account for every one-off (“Holiday Party 2026”), which is what memo fields are for.
Vague names. “Miscellaneous,” “Other,” and “General” are where categorization goes to die. If a cost genuinely fits nowhere, that is a signal to either widen an existing account’s name or add one specific account, not to open a junk drawer.
Mixing personal spending. Groceries on the business card are not an expense; they are an owner draw. Recording them as “Supplies” overstates your costs, understates your profit, and gives your CPA a cleanup job. The fix is a separate business account and card, then routing the occasional slip to Owner Draws.
Duplicates. “Software,” “Subscriptions,” and “SaaS” are the same thing three times. When you see two accounts that could plausibly hold the same transaction, merge them.
Skipping cost of goods sold. Service businesses often put everything in operating expenses, which hides the number that matters most: gross profit per job. If a cost only happens because you did a job (materials, subcontractors, direct labor), it belongs in the 5000s.
Customizing by industry
The starter chart is a skeleton. Different businesses put different weight on different sections, and our guide to bookkeeping by industry goes deeper on each.
Restaurants split cost of goods sold into food, beverage, and paper, and often break labor into front-of-house and back-of-house. Contractors and trades lean on job costing, tracking materials and labor by project through the software’s project or class feature rather than by adding dozens of accounts. E-commerce businesses need an inventory asset, shipping income and shipping expense, and merchant fees broken out by platform, since each takes a different cut. Professional services firms are mostly labor, so the interesting detail is in revenue lines: retainers, project fees, hourly work.
Franchisees have a special case. Your franchisor almost certainly requires a particular profit and loss format, with accounts for royalties, brand fund contributions, and technology fees, and it is far easier to build your chart to that format from day one than to translate every month. Our franchise chart of accounts template maps to the typical franchisor P&L and explains where your own local accounts fit around it.
Changing it later without wrecking history
You will want to change the chart eventually, and that is fine as long as you follow three rules.
First, never delete an account that has transactions in it. Deleting removes the history from every past report. Both QuickBooks Online and Xero let you make an account inactive instead, which hides it from menus while preserving the past; the step-by-step for each is on QuickBooks’ support site and Xero Central.
Second, prefer renaming and merging over adding. Renaming is harmless and instant. Merging two duplicates (both programs support this) moves the history into one account and is usually the right fix for the “three software accounts” problem. Adding an account should follow a real question you could not answer from the reports.
Third, make structural changes at a month or year boundary, and tell your CPA. A mid-month reshuffle makes that month’s reports hard to compare to the last one, and your CPA has a mapping from your accounts to your tax return that they will need to update. The handoff between the two roles is the subject of our bookkeeping vs. accounting post, and the chart of accounts is the single document they most need to agree on.
Frequently asked questions
How many accounts should a small business have?
Somewhere between 20 and 40 for most businesses under a few million in revenue. Fewer than 15 usually means important costs are lumped together; more than 50 usually means vendor names or one-off events have crept in as categories. The test is whether you can read your monthly profit and loss statement in under a minute.
Should I use the default chart of accounts in QuickBooks Online or Xero?
The defaults are a reasonable starting point but tend to include accounts you will never use and miss ones you need. A better approach is to import or build a trimmed chart like the one above during setup, before any transactions post. Our QuickBooks Online setup guide walks through that step in order.
Do account numbers matter?
Not to the software, which works fine without them. They matter to people. Numbers keep the chart in a logical order on every report, make it obvious which section a new account belongs to, and let a bookkeeper or CPA find things without hunting. Turn them on; it takes a minute.
Should my chart of accounts match my tax return?
It should map to it cleanly, which is different from matching it line for line. Your reports exist to help you run the business, so keep the categories that help you decide things. Just make sure each one rolls up unambiguously to a line your CPA files on, and avoid categories that would have to be split at tax time.
Where to go from here
Open your software, pull up the current chart, and compare it to the template. Merge the duplicates, rename anything vague, move personal items to Owner Draws, and turn on account numbers. That is usually an hour of work and it pays off on every report you run afterward.
If you would rather have someone set it up right the first time, or untangle a chart that has grown wild, that is what a BooXkeeping team is for. Our QuickBooks solutions cover setup, cleanup, and the monthly bookkeeping that keeps the chart tidy.
Reviewed for tax year 2026.
BooXkeeping is a bookkeeping company, not a CPA firm or a law firm. This article is general information for business owners, not tax, legal, or financial advice. Rules change and your situation is specific, so confirm anything here with your CPA or attorney before acting on it.