The chart of accounts is the list of buckets every transaction ends up in. It is the foundation of the accounting section, and everything else in it assumes this is right.
Five types
Every account is one of five, and the type decides which statement it appears on.
| Type | What it holds | Appears on |
|---|---|---|
| Asset | What you own | Balance sheet |
| Liability | What you owe | Balance sheet |
| Equity | What is left over | Balance sheet |
| Revenue | What you earn | Profit and loss |
| Expense | What you spend | Profit and loss |
That mapping is not a convention you can change. It is what makes the statements produce themselves.
What an account carries
A code, the number used to order and reference it.
A name, which is what people read.
A sub-type, a finer classification within the five.
A parent, which is how the tree is built.
A normal balance, debit or credit, which is the side the account usually sits on.
A currency and an active flag.
Codes and the tree
Accounts nest. A parent groups its children and the statements roll up through the structure.
Number them in blocks by type. The convention almost everybody uses is one range for assets, another for liabilities, and so on. It makes the list scannable and it makes a miscoded account obvious.
Leave gaps. Numbering consecutively means the first account you add in the middle either breaks the ordering or forces a renumber, and renumbering a chart of accounts after transactions have posted is genuinely painful.
Go two levels, rarely three. A deep tree is satisfying to build and miserable to read on a statement.
How many accounts
Fewer than you think.
The instinct is to create an account per thing you want to see. That produces a hundred-line profit and loss that nobody reads, and the detail was available anyway by drilling into a smaller number of accounts.
The test: would you make a different decision if these two were separate? If not, they are one account, and the distinction belongs in a category or a dimension rather than in the chart.
Who should build it
Your accountant, or somebody working from what they gave you.
This is the one screen in the platform where the right answer is genuinely external. A chart of accounts reflects how your business must report, which is a function of your jurisdiction, your structure and your size, and none of that is knowable from inside the product.
Where there is no accountant yet, the seeded default is safe to trade on and worth reviewing with one before your first year end.
Deactivating rather than deleting
An account with history cannot be removed without removing the history.
Mark it inactive. It stops being offered for new postings and stays available for anything already posted against it, which keeps every past statement reproducible.
The two settings behind everything
They live in accounting settings and are the smallest, most consequential screen in Finance.
Fiscal year start month. Which month is period one. Set it once, correctly. A wrong fiscal year makes every statement and every budget compare against the wrong span, and nothing visibly errors.
Accounting method. Accrual by default, or cash.
Accrual recognises revenue when it is earned and cost when it is incurred, regardless of when money moves. It is what most businesses are required to report on and it is the honest picture of a period.
Cash recognises both when money actually moves. Simpler, and it describes your bank rather than your business.
This is not a preference. It is usually determined by your jurisdiction and your size, and it is a question for your accountant rather than a setting to try.
A first chart
For an organisation with no accountant's list to start from, the seeded default is a reasonable chart for a services business and needs three kinds of change.
Rename anything using vocabulary you do not. Statements are read by people, and an account named in somebody else's terms is one they will misread.
Add the two or three distinctions your business genuinely makes. Separate revenue lines for materially different income streams, and separate cost lines for your largest categories.
Deactivate what does not apply. An account for something you do not do is a place for something to land by accident.
Half an hour, once, and it does not need revisiting.
Getting it right first
The chart is the one thing genuinely worth doing carefully before anything else, because everything posts into it and restructuring afterwards means re-mapping historical transactions.
Start from your accountant's list if you have one, or from the seeded default if you do not.
Add what your business actually distinguishes and nothing else.
Then leave it alone. A chart that changes every quarter produces statements that cannot be compared across quarters, which defeats the purpose of having them.
Sub-types
Within each of the five, a sub-type gives a finer classification: current versus fixed assets, current versus long-term liabilities, cost of sales versus overheads.
It is what lets a balance sheet group sensibly rather than listing thirty accounts in one block, and it is worth setting even on a small chart. The statements read considerably better for it and it costs nothing at creation.
Currency on an account
An account carries a currency, which for most organisations is the base currency for all of them.
The exception is a business holding accounts in more than one currency, typically bank accounts. Those are held in their own currency and converted for the statements, which is why a rate movement changes your balance sheet without any transaction occurring.
What you do not have to do
You do not post to these accounts by hand. Invoices, payments, expenses and payroll all post automatically through the mapping layer.
The chart is the vocabulary; the mappings decide which word each event uses. Both are inspectable, and the general ledger article covers what the resulting entries look like.
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