Chart of Accounts Explained: How to Set Yours Up the Right Way | GuidedLedger

Chart of Accounts, Explained

Your chart of accounts is the master list of every "bucket" your business uses to track money. Every transaction gets categorized into one of these buckets — and your P&L, balance sheet, and tax return are built from them.

The five categories every COA has

  1. Assets — what you own.
  2. Liabilities — what you owe.
  3. Equity — owner contributions, distributions, retained earnings.
  4. Income — money you earn.
  5. Expenses — the cost of doing the work (COGS + operating expenses).

Common mistakes

  • Too many accounts (300+ is unmanageable).
  • Mixing personal and business in operating expenses.
  • "Miscellaneous" as a permanent dumping ground.
  • Owner draws recorded as expenses.