Building a practical chart of accounts: Two sample documents
This download includes two charts of accounts that illustrate the basics described in the article The wrong chart of accounts will destroy a business before it even starts. One chart is for a corporation; the other is for a sole proprietorship.
No matter what product is to be sold or what service is to be offered, starting and operating a small business takes courage, fortitude, and lots and lots of planning. As an accountant catering to small businesses for 30 years or so, I can tell you that many entrepreneurs have the courage and the fortitude in abundance, but not nearly as many take the time to truly plan how their fledgling business is going to operate.
One of the first, and also one of the most serious, accounting mistakes small businesses to make is not creating a cogent, coherent, and practical chart of accounts. In fact, some people start a business without even knowing what a chart of accounts is. To put it bluntly, if you don’t know what a chart of accounts is and why it is so important, you might want to reconsider your plans to start a business.
What is the chart of accounts?
The chart of accounts is a numbered list of assets, liabilities, equity, revenues, and expenses that form the foundation for every transaction a business will make during its existence. It is the framework for all the bookkeeping, accounting, and tax reporting the company will be required to perform. Create a proper chart of accounts for your business before you transact any business—or you will regret that you didn’t.