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.