Chart of accounts

The list of categories your bookkeeping puts every transaction into. Boring, and it decides what your reports can tell you.

What it means

The chart of accounts is the set of headings in your accounting software — sales, materials, subcontractors, rent, insurance, and so on — that every transaction is coded to.

Why it matters

You can only ever report on distinctions your chart of accounts makes. If all your income goes to one "Sales" line, no report will ever tell you which part of the business earns the money, and no amount of analysis afterwards can recover it.

It is a fifteen-minute setup decision that determines the usefulness of every report for years.

What it looks like in practice

Split sales by the parts of the business that behave differently — different margins, different customers, different people delivering them. Split costs the same way, and keep the cost of sales and overhead groups clean.

Resist adding a code for everything. Twenty useful headings beat two hundred nobody maintains.

What to watch out for

Changing it mid-year without a plan, which breaks comparison with last year — usually worth doing anyway, but do it at a year end and have your accountant restate the prior year.

Where to get proper advice

Your bookkeeper or accountant. Ask them to set it up around the questions you want answered rather than around their default template.