What Is a Chart of Accounts (COA)? How It Works and Example

By Markets & Investing DeskUpdated Nov 10, 2026

Definition

A chart of accounts is the organized list of every account a business uses to record transactions in its general ledger, grouped into assets, liabilities, equity, revenue and expenses.

Key takeaways

A common numbering scheme gives assets the 1000s, liabilities the 2000s, equity the 3000s and revenue the 4000s.
Gaps between account numbers let a business add accounts, like savings at 1020, without renumbering.
Assets, liabilities and equity feed the balance sheet, while revenue and expenses feed the income statement.
Renumbering or merging accounts mid-year breaks comparisons with earlier periods unless balances are remapped.

A chart of accounts (COA) is the complete, organized list of every account a business uses to record transactions in its general ledger. Each entry usually carries an account number, an account name and a short description. The COA does not hold balances or transactions itself. It defines the categories where transactions are recorded, so every sale, bill payment or asset purchase lands in a consistent, identifiable place.

How a Chart of Accounts Works

The COA is built on the five primary account types of financial accounting:

Assets: what the business owns or controls, such as cash, receivables, inventory and equipment.
Liabilities: what it owes, such as accounts payable, credit card balances and loans.
Equity: the owners’ claim, such as common stock and retained earnings.
Revenue: income from selling goods or services.
Expenses: costs of running the business, such as wages, rent and utilities.

The first three feed the balance sheet, and the last two feed the income statement. Because most charts follow statement order, the list reads roughly like a map of the financial statements before any numbers are filled in.

Each primary type is broken into sub-accounts. Revenue might split into operating revenue (core sales) and non-operating revenue (interest income, gains on asset sales). Expenses might split into operating expenses and non-operating losses. Larger companies often go further and divide operating revenue and expenses by business function, product line or division.

Account numbers and identifiers

Account codes let anyone locate an account quickly and tell its type at a glance. A widely used convention assigns a block of numbers to each primary type, for example:

1000 to 1999: assets
2000 to 2999: liabilities
3000 to 3999: equity
4000 to 4999: revenue
5000 to 9999: expenses (often subdivided into cost of sales, operating expenses and other expenses)

Smaller businesses may use three-digit codes instead (100 to 199 for assets, 200 to 299 for liabilities, and so on). Within each block, narrower ranges create subgroups, such as 1100 to 1199 for current assets or 2100 to 2199 for current liabilities. Fixed assets, like vehicles, buildings and equipment, usually get their own range within assets (for instance 1500 to 1599), with accumulated depreciation accounts sitting alongside them.

Leaving gaps between numbers matters. If cash is 1010 and petty cash is 1030, a new savings account can become 1020 without renumbering anything. The number of digits a company uses depends on its size and complexity. A firm with several departments or locations may add segments to the code, so the same expense account (say, wages) exists separately for sales, engineering and accounting. Construction and project-based businesses often add job or cost codes in a similar way to track spending by project.

Example of a Chart of Accounts

The following is a hypothetical chart for a small online retailer, abbreviated for illustration:

Number	Account name	Type
1010	Checking account	Asset
1020	Savings account	Asset
1030	Petty cash	Asset
1200	Accounts receivable	Asset
1300	Inventory	Asset
1400	Prepaid insurance	Asset
1510	Vehicles	Asset (fixed)
2010	Accounts payable	Liability
2100	Company credit card	Liability
2200	Payroll liabilities	Liability
2500	Notes payable	Liability
3010	Common stock	Equity
3900	Retained earnings	Equity
4010	Product sales	Revenue
4900	Interest income	Revenue (non-operating)
5010	Cost of goods sold	Expense
6010	Wages expense	Expense
6200	Bank and payment platform fees	Expense
6300	Utilities expense	Expense
6800	Depreciation expense	Expense

When the retailer pays a card processor’s monthly fee, the bookkeeper debits 6200 (bank and payment platform fees) and credits 1010 (checking). The COA does not decide whether that entry is correct; it provides the destinations. In accounting software, linking an expense category to a specific COA number is what determines where a transaction is posted and, eventually, which line it reaches on the income statement. Product costs flow to cost of goods sold, while inventory still on the shelf stays in account 1300 as an asset.

Why a Chart of Accounts Is Important

The COA turns thousands of individual transactions into categories that can be totaled, compared and reported. That supports several jobs:

Financial statements: the balance sheet and income statement are assembled by summing accounts by type.
Consistency across periods: if marketing costs sit in the same account every fiscal quarter, managers and investors can compare quarters and years directly.
Management reporting: departmental or project segments show where money is earned and spent.
Taxes and audits: well-defined accounts make it easier to support figures and trace them back to transactions.

No law mandates a specific chart for most private US businesses, though in practice any business using double-entry bookkeeping or accounting software needs one, because transactions must be posted to defined accounts. US companies have wide freedom in designing a COA, but the statements it produces must still follow generally accepted accounting principles (GAAP), set by the Financial Accounting Standards Board (FASB). Some regulated sectors use prescribed systems; US public utilities under the Federal Power Act, for example, follow a uniform system of accounts. Several countries, such as France, require a national standard chart for many businesses.

Limitations of a Chart of Accounts

A COA is only as useful as its design. Common problems include:

Too many accounts: excessive detail makes posting error-prone and reports hard to read.
Too few accounts: lumping unrelated costs together (a catch-all “miscellaneous” account) hides information.
Frequent changes: renaming, merging or renumbering accounts mid-year breaks comparisons with earlier periods unless historical balances are remapped.
Inconsistent use: if staff post similar transactions to different accounts, totals become misleading even with a well-designed chart.

General ledger: the COA lists the accounts; the general ledger records the actual transactions and balances in each one.
Trial balance: a report of every account’s debit or credit balance at a point in time, used to confirm debits equal credits. It draws its account list from the COA.
Financial statements: summarized, formatted reports for outside readers. Several COA accounts often roll up into one statement line, so a single line such as revenue may combine multiple accounts.
Subsidiary ledgers: detailed records (by customer, vendor or asset) that support a single control account in the COA, such as accounts receivable.

The Bottom Line

Business owners, bookkeepers and anyone setting up accounting software need a chart of accounts, since every transaction must post to a defined account. Most private US businesses can design their own, but the statements it produces must still follow GAAP. A useful chart balances detail against simplicity, leaves room to grow and gets applied consistently so comparisons across periods stay reliable.