What Is a Chart of Accounts?

The definition
The five types of account

A chart of accounts is the list of every account your business uses to record its transactions, such as cash, accounts receivable, revenue and each type of expense, each with a number. It's the filing system for your books. Every transaction you record debits one account on the list and credits another, and your financial statements are built from those accounts.

The definition

OpenStax's Principles of Accounting, Volume 1 (chapter 3 key terms, opened October 29, 2026) defines a chart of accounts as an "account numbering system that lists all the accounts a business uses in its day-to-day transactions."

In section 3.2, it adds: "The accounts are presented in the chart of accounts in the order in which they appear on the financial statements, beginning with the balance sheet accounts and then the income statement accounts." It also says, "The information in the chart of accounts is the foundation of a well-organized accounting system."

The five types of account

Assets: what the business owns, such as cash, accounts receivable and equipment.
Liabilities: what it owes, such as accounts payable, credit cards and loans.
Equity: the owner's stake in the business.
Revenue: what it earns from customers.
Expenses: what it spends to operate.

The first three appear on the balance sheet, and revenue and expenses on the profit and loss statement.

How accounts are numbered

OpenStax's Table 3.2 numbers each account by its first digit:

1: assets (100–199 for a small company, 1000–1999 for a large one)
2: liabilities (200–299; 2000–2999)
3: equity (300–399; 3000–3999)
4: revenues (400–499; 4000–4999)
5: expenses (500–599; 5000–5999)

It notes that "Additional numbers starting with six and continuing might be used in large merchandising and manufacturing companies." Leave gaps between numbers, so you can add an account later without renumbering.

Worked example: a small studio's chart and three transactions

The figures here are a sample. A design studio sets up a short chart of accounts using three-digit numbers:

101 Cash
120 Accounts Receivable
201 Accounts Payable
301 Owner's Equity
401 Design Revenue
510 Software Expense
520 Contractor Expense

It then records three transactions:

It invoices a client $2,000. Debit 120 Accounts Receivable $2,000; credit 401 Design Revenue $2,000. Debits $2,000 = credits $2,000.
It pays a $120 software subscription. Debit 510 Software Expense $120; credit 101 Cash $120. Debits $120 = credits $120.
The client pays the $2,000 invoice. Debit 101 Cash $2,000; credit 120 Accounts Receivable $2,000. Debits $2,000 = credits $2,000.

Balances from these three entries:

Cash: $2,000 − $120 = $1,880.
Accounts Receivable: $2,000 − $2,000 = $0.
Design Revenue: $2,000.
Software Expense: $120.

On the profit and loss statement, that's $2,000 of revenue less $120 of expense, or $1,880 of profit for these transactions. Because each transaction went to a numbered account, the studio can see at a glance where its revenue came from and what it spent on software.

Setting one up

Start with the accounts you need. Add an account when a category matters for decisions or your tax return, not for every vendor.
Use one account per idea. For example, one "Meals" account, not three near-duplicates.
Ask your accountant for a starting list that fits your business, and for how your accounts map to your tax return.
Review it once a year: merge accounts you don't use and split ones that have become too broad. Ask your accountant before deleting an account that has transactions in it.

Where Billed fits

Billed's expense and receipt tracking page says to "Give every expense a category so your spending is already sorted when you file taxes or hand the year to your accountant," and that "Billed's expense report can group your expenses by category." That page and Billed's invoice software page don't describe a chart of accounts or a general ledger. Keep your chart of accounts in your accounting records, and share your expense categories with your accountant or bookkeeper.

Frequently Asked Questions

What is a chart of accounts?

It's the numbered list of every account a business uses to record its transactions. OpenStax defines it as an "account numbering system that lists all the accounts a business uses in its day-to-day transactions."

How is a chart of accounts numbered?

In the OpenStax system, the first digit shows the type of account: 1 for assets, 2 for liabilities, 3 for equity, 4 for revenues and 5 for expenses. A small company might use 100–599, and a large one 1000–5999.

What order are the accounts listed in?

In the order they appear on the financial statements: balance sheet accounts first (assets, liabilities, equity), then income statement accounts (revenues, expenses).

What's the right number of accounts for a small business?

There's no set number. Start with the accounts you need for your decisions and your tax return, and add more only when a category is worth tracking on its own. Your accountant can suggest a starting list for your type of business.

Does Billed keep a chart of accounts?

Billed's expense tracking page describes giving each expense a category and grouping expenses by category in the expense report. That page and Billed's invoice software page don't describe a chart of accounts or a general ledger.

Was this article helpful?

What Is a Chart of Accounts? A Simple Guide for Small Business