Definition
A chart of accounts is the coded list of every account a business uses to record transactions, organized as a hierarchy of assets, liabilities, equity, revenue and expenses. Each account has a number and a name. A well-designed chart makes posting consistent and lets the financial statements be produced directly from account balances.
How it works
Most charts use number ranges per type, for example 1xxx assets, 2xxx liabilities, 3xxx equity, 4xxx revenue and 5xxx to 8xxx expenses, with deeper levels for groups and postable accounts. Summary levels only total their children; entries are posted to the lowest level.
Design for reporting, not for every detail. Customers, suppliers, branches and projects are better tracked as dimensions on each line (party, cost center, project) than as separate accounts, which keeps the chart to a few hundred accounts even in a group of companies.
Start from a template that matches your accounting standard and adjust it. Ledgeriano offers ready charts for IFRS, US GAAP, European PCG, GCC businesses with VAT and zakat, and small businesses; you can browse and download them as chart of accounts templates. The chart of accounts guide covers design choices in depth.
Example: the top of an IFRS-style chart
Three levels: a type, a group and postable accounts underneath.
| Code | Account | Level |
|---|---|---|
| 1 | Assets | Type |
| 11 | Current assets | Group |
| 110 | Cash and cash equivalents | Sub-group |
| 1101 | Cash on hand | Postable |
| 1103 | Bank: main operating account | Postable |
| 111 | Trade and other receivables | Sub-group |
| 1111 | Trade receivables | Postable |