Let’s Get Specific: Building a Chart of Accounts That Actually Works for You

Because “Miscellaneous” isn’t a strategy.

When you start a small business, no one tells you how much time you’ll spend squinting at vague expense categories, wondering where that charge really belongs. Or worse—just tossing it into “Miscellaneous” and moving on.

But here’s the thing: your chart of accounts is more than just a list. It’s the backbone of your entire bookkeeping system. And when it’s clear, specific, and thoughtfully built? It gives you insight instead of confusion. Direction instead of doubt.

Let’s break it down—without the jargon.

Let’s start with the basics.

Your business can be described—entirely—by your financial statements.

That might sound dramatic, but it’s true. No matter what kind of business you run, the heart of it all boils down to a few key reports: your Balance Sheet and your Income Statement (also known as the Profit & Loss Statement, or P&L for short).

These reports don’t just exist for accountants. They’re a reflection of everything happening in your business—what you own, what you owe, what you’re earning, and what it costs to keep things running.

But here’s the part most people miss:
These reports are only as good as the structure behind them.
And that structure is your chart of accounts. Your chart of accounts are the bricks that build the entire structure. Having the right bricks in the right place is the only way to build something meaningful.

So how does the chart of accounts fit in?

Think of your chart of accounts like the blueprint for your financial house. Every transaction you record—every dollar in or out—gets categorized through the lens of your chart of accounts.

Let’s break it down:

• The Income Statement shows what your business earned and what it spent over a period of time.
  - This pulls from categories like Revenue, Cost of Goods Sold, and Operating Expenses—all of which are built from your chart of accounts.

• The Balance Sheet shows what your business owns, what it owes, and what’s left over.
  - This includes Assets, Liabilities, and Equity—again, all of which are organized through your chart of accounts.

Without a clear, intentional chart of accounts, your financial statements become cluttered, confusing, or flat-out inaccurate. It's like trying to write a novel with a broken alphabet—you’re technically writing something, but it won’t make sense.

Because every decision you make—every subscription, sale, contractor payment, or piece of equipment you buy—flows through your chart of accounts. It’s how you see what’s working, where your money’s going, and whether your big ideas are actually paying off.

If you’re relying on generic, out-of-the-box categories (or worse, the dreaded “Other”), you’re missing the chance to understand your business on a deeper level.

What a good chart of accounts looks like

It’s:

• Specific

• Organized

• Reflective of how you run your business

Instead of “Office Supplies,” you might have:

• Printing + Copying

• Postage + Shipping

• Packaging Materials

Instead of just “Income,” try splitting it by:

• Product Sales

• Service Revenue

• Affiliate Commissions

• Retainer Work

And yes—this takes more work upfront. But that clarity will pay you back in the long run, especially when it’s time to review performance, talk to a CPA, or make a big decision

How to build your chart of accounts (without losing your mind)

1. Start with what you know
What are your main revenue streams? What do you spend money on every month? What tools, subscriptions, or vendors are regular players in your business life? Write those down first.

2. Break down the vague stuff
Look for any category that feels like a catch-all. If “Operations” or “Marketing” includes ten different things, split them out. This isn’t about creating complexity—it’s about making your data useful.

3. Use the software, but don’t let it use you
Most accounting tools (like QuickBooks or Xero) offer default charts of accounts. They’re fine to start—but they’re not sacred. Customize them to fit you. Remove what doesn’t apply. Rename categories so they make sense to your brain. It’s your business, not theirs.

4. Think ahead to tax season
While your chart of accounts should serve you all year long, don’t forget your future self who’s prepping for tax time. Make sure your categories align (roughly) with your tax return to make things easier later.

5. Revisit regularly
Your business will evolve. So should your chart of accounts. Set a reminder to review it once or twice a year. Are there new income streams? Are you no longer using certain accounts? Tidy as you grow.

How to Organize your Chart of Accounts

After you have taken the time to identify the categories you would like to see, you will need to organize these categories. A Chart of Accounts isn’t just a random list—it’s a carefully structured system. Each account gets assigned a unique account number that helps organize your financial data and makes reporting cleaner and more consistent. These account numbers range in size and complexity ranging from 4 to 6 digits. In general, most small businesses do not need more than 5 digits. These numbers will be referred to as your General Ledger (“GL”) Accounts.

These numbers typically follow a logical pattern and are grouped by account type. Below is a general guideline for how most charts are organized, you can use this as a framework for yourself and edit or add where you see fit.

The examples below are very high level and should not be taken literally but my hope is that they will help you organize your thoughts. We will dive into the structure of financial statements in another blog post, but in general the arrows will show how these items will show up on the financial statements.

Balance Sheet: Assets - Includes everything the business owns.

Assets are generally given general ledger account numbers starting with 1. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 1000-1999.

Examples:

• 1000 - Cash → Assets → Balance Sheet

• 1050 - Accounts Receivable → Assets → Balance Sheet

• 1200 - Inventory → Assets → Balance Sheet

• 1500 - Equipment → Assets → Balance Sheet

Do you notice my example skips digits? This is highly recommended to allow you to add accounts as your business grows. In this specific example specifically using this chart you have room to add 50 different cash accounts.

Example:

• 1000 - Checking 1 → Cash → Assets → Balance Sheet

• 1001 - Checking 2 → Cash → Assets → Balance Sheet

• 1010 - Savings 1 → Cash → Assets → Balance Sheet

• 1020 - Portfolio Cash → Cash → Assets → Balance Sheet

• 1200 - Final Product Inventory → Inventory → Assets → Balance Sheet

• 1250 - Raw Material Inventory → Inventory → Assets → Balance Sheet

• 1300 - Merchandise Inventory → Inventory → Assets → Balance Sheet

• 1350 - Promotional Inventory → Inventory → Assets → Balance Sheet

In this further broken down account structure example you can see how this idea continues where we allow checking accounts to be 1000-1009 allowing your business to have 9 different checking accounts before moving on to Savings starting at 1010. This concept is core to building a flexible and highly organized Chart of Accounts.

Balance Sheet: Liabilities - Includes everything the business owes.

Liabilities are generally given general ledger account numbers starting with 2. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 2000-2999.

Examples:

• 2000 - Accounts Payable/Vendors Payable → Liabilities → Balance Sheet

• 2100 - Credit Card Payable → Liabilities → Balance Sheet

• 2200 - Loans Payable → Liabilities → Balance Sheet

Balance Sheet: Equity - Owner’s investment and retained earnings.

Equity accounts are generally given general ledger account numbers starting with 3. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 3000-3999. This is especially important to track if there are multiple owners in the business to ensure that everyone’s ownership value is being appropriately accounted for.

Examples:

• 3000 - Owner’s Capital → Equity → Balance Sheet

  • 3001- Owner 1 → Owner’s Capital → Equity → Balance Sheet

  • 3002- Owner 2 → Owner’s Capital → Equity → Balance Sheet

• 3100 - Retained Earnings → Equity → Balance Sheet

• 3200 - Distributions → Equity → Balance Sheet

P&L: Revenue - Money coming in.

Revenue accounts are generally given general ledger account numbers starting with 4. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 4000-4999. Structuring your Revenue Accounts by the types of revenue you receive is critical to valuable strategic insights. The more general the account the less you will be able to do with the data. I also generally advise making your “Other” category the last number in the category, in this case 4999.

Examples:

• 4000 - Product Sales → Revenue → P&L

• 4100 - Merchandise Sales → Revenue → P&L

• 4200 - Service Revenue → Revenue → P&L

• 4999 - Other income → Revenue → P&L

P&L: Cost of Goods Sold - Direct costs to produce goods or services

Cost of Goods Sold, commonly referred to as COGS, are generally given general ledger account numbers starting with 5. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 5000-5999.

Examples:

• 5000 - Materials → COGS → P&L

• 5100 - Packaging → COGS → P&L

• 5200 - Freight /Shipping → COGS → P&L

P&L: Operating Expenses - General day-to-day expenses.

Operating Expenses, commonly referred to as OpEx, are generally given general ledger account numbers starting with 6. Using the four digit GL Account code structure this means all of you Asset type accounts will be given a number between 6000-6999.

Examples:

• 6000 - Rent → OpEx → P&L

• 6050 - Utilities → OpEx → P&L

• 6100 - Salaries & Wages → OpEx → P&L

• 6200 - Freight /Shipping → OpEx → P&L

• 6300 - Software Subscriptions → OpEx → P&L

• 6400 - Marketing → OpEx → P&L

• 6500 - Professional Fees → OpEx → P&L

Why This Numbering System Matters

• Clarity & Consistency: The numbering keeps your accounts in a logical order, making reports easier to read.

• Customization: You can add subcategories as needed (e.g., 6051 – Internet, 6052 – Phone).

• Automation-Friendly: Accounting software often uses these numbers to map accounts and automate processes like importing bank transactions or generating reports.

• Scalability: As your business grows, your COA, chart of accounts, can grow with you in an organized way.

A strong chart of accounts gives you a real-time financial dashboard—because every number has a place, and every place has a purpose.

Final Thoughts: Build It Right, Grow with Confidence

Your chart of accounts isn’t just accounting busywork—it’s one of the most powerful tools in your business. When it’s built thoughtfully and structured to reflect how your business actually works, it becomes a living map of your operations, helping you spot patterns, understand your cash flow, and make informed decisions.

It doesn’t have to be perfect. But it does have to be intentional.

So take the time now to build something that supports where you’re going—not just where you’ve been. Your future self (and your future CPA) will thank you.