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Accounting encyclopedia · Bookkeeping

Chart of accounts

A chart of accounts is the organized list of accounts used to classify a business's transactions. It separates assets, liabilities, equity, income and expenses, with enough detail to support useful reports. It is the structure behind your accounts, rather than a list of bank accounts or a tax return.

Sora Accounting & Tax · General information
Updated · 2 min read

Give each type of transaction a place

A chart of accounts groups entries so reports can show useful categories.

Visual labels: Accounts; Income; Expenses.

Design categories around decisions

The right level of detail depends on what you need to understand. A contractor may want to distinguish materials, subcontractors and vehicle costs. A professional practice may need a clearer view of staff costs, premises and professional subscriptions. Categories should help someone interpret the business.

Too little detail hides information. Too much detail encourages inconsistent coding and makes a simple report difficult to read. Start with useful distinctions and document how ambiguous purchases should be treated.

A category changes the story

A loan deposit increases cash but is not a sale. A transfer between the business's own bank accounts is not new income. Buying equipment can require a different treatment from paying a recurring operating bill. The chart provides separate places for these transactions, but someone still needs to identify what happened.

An account name does not decide whether a cost is deductible for tax. The underlying purpose, evidence and applicable rules still matter.

Keep the structure consistent

Before adding new accounts, check whether the category already exists. Review uncategorized transactions and miscellaneous balances regularly. If you change the structure, preserve a way to compare earlier periods meaningfully.

Bring an example management report to the discussion with your accountant. It is easier to choose useful accounts when you can see the questions the finished report should answer.

Sources & editorial notes

Sources checked October 23, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.

Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.