wardell books

Chart of Accounts

Your Chart of Accounts is a list of all the financial accounts you need for your business. It's the road map that guides your financial information into your accounting system. Your financial accounts represent the various types of financial transactions engaged in by your business. For example, you may pay rent, purchase equipment, and pay employees. There are five basic categories of financial accounts. These are: Assets, Liabilities, Equity, Revenues, and Expenses. Following is a brief explanation of each.

The Five Basic Account Categories

  1. Assets

a. Current Assets — Cash or other assets that could be converted into cash within one year (such as “accounts receivable”).

b. Fixed Assets — Long-term assets such as real estate and equipment.

  1. Liabilities

a. Current Liabilities — Payments due within one year, such as accounts payable and taxes.

b. Long-term liabilities — Payments due beyond one year, such as the concurrent portion of a loan.

  1. Equity — The difference between your assets and your liabilities. Essentially, this is what you would have left if you sold all of your assets and paid all of your debts.

a. Retained Earnings (Profits) — The accumulated earnings of your business since its inception.

  1. Revenues — Income received by your business. This will be mostly from sales, but could also include income from rents, commissions, interests, gifts and so forth.

  2. Expenses

a. Variable Expenses — Operating expenses that vary in some proportion to sales. For example, sales wages and manufacturing costs will increase or decrease as a result of a change in sales.

b. Fixed Expenses — Operating expenses that do not vary in proportion to sales. For example, rent and management wages will remain relatively fixed despite any change in sales.

Below is a sample Chart of Accounts. The numbering system helps to organize the basic account categories into groups and is typically similar for all companies. The specific accounts within these categories, however, may vary from company to company.

Basic Account Categories

1000 Assets

2000 Liabilities

3000 Equity

4000 Revenues

5000 Expenses

Example: Chart of Accounts


1000 Current Assets

1005 Cash

1020 Investments

1025 Accounts Receivable

1030 Allowance for Doubtful Accounts

1035 Inventory

1040 Prepaid Expenses

1045 Deposits

1100 Fixed Assets

1105 Land

1110 Building

1115 Vehicles

1120 Leasehold Improvements

1125 Furniture and Fixtures

1130 Office Equipment

1135 Equipment

1140 Machinery

1145 Accumulated Depreciation - Building

1150 Accumulated Depreciation - Vehicles

1155 Accumulated Depreciation - Leasehold

1160 Accumulated Depreciation - Furniture and Fixtures

1165 Accumulated Depreciation - Office Equipment

1170 Accumulated Depreciation - Equipment

1175 Accumulated Depreciation - Machinery

1200 Other Assets

1205 Patents and Copyrights

1210 Franchise Fees Paid

1215 Other Assets


2000 Current Liabilities

2005 Accounts Payable

2010 Accrued Expenses

2015 Accrued Rent

2020 Bank Loan

2025 Credit Line Balance Payable

2030 Commissions Payable

2035 Salaries Payable

2040 Payroll Taxes Payable

2045 Federal Sales Tax Payable

2050 Provincial Sales Tax Payable

2055 GST Collected

2060 GST Paid

2065 Customer Deposits

2070 Current Portion of Long Term Debt

2075 Federal Income Tax Payable

2080 Provincial Income Tax Payable

2085 Other Current Liabilities

2100 Long-term Liabilities

2105 Mortgage Payable

2110 Bank Loan

2115 Other Long-term Liabilities


3005 Common Stock

3010 Preferred Stock

3015 Paid-in Capital

3020 Retained Earnings

3025 Owner's Draw


4005 Sales - Products

4010 Sales - Services

4015 Other Income

4020 Returns and Allowances

4025 Discounts


5000 Variable Expenses

5005 Product Costs

5010 Shipping Direct

5015 Labour

5020 Sales Commissions

5025 Telephone (sales related)

5100 Fixed Expenses

5105 Salaries

5110 Rent

5115 Indirect Sales and Promotion

5120 Telephone

5125 Utilities

5130 Office

5135 Interest

5140 Supplies

5145 Wages and Salaries (indirect)

5150 Management Salaries

5155 Travel and Entertainment

5160 Miscellaneous

Review your Chart of Accounts line by line to determine its effectiveness. Ask yourself how it could be improved. You may have categories you don't use or you may need to break some categories up in order to present a more detailed view of your finances.

Exactly how many accounts you might need is up to you, but be as specific as you can, especially concerning your sales and administrative expenses. That way, you'll have more details to draw from when you analyze your financials. It often makes sense, for example, to set up accounts for each of the different products or services you sell. If this seems unreasonable, you should at least set up accounts for each category of products or services you sell. That way you can monitor the financial impact they each have on your business. Your bookkeeper or accountant will be able to help you with this as well.

The best time to update your Chart of Accounts is at your fiscal year-end. This way your accounting information stays consistent throughout the year as well.

If you are updating your Chart of Accounts, what additions or deletions will you make?