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What is a chart of accounts?

  • By Book Keeping Pros
  • Sources checked 15 Oct 2026

Definition

A chart of accounts is the list of every account a business uses to record its transactions. Accounts are usually grouped into assets, liabilities, equity, income and expenses, and each transaction is recorded against the accounts it affects in the general ledger.

Each account has a name and usually a code, such as one account for bank fees and another for interest received, so the same kind of transaction lands in the same place each time. Clear names matter as much as codes: an account called Software subscriptions tells whoever is coding a receipt exactly what belongs there, while one called General invites guesswork.

The chart of accounts decides how a business's figures are grouped in its reports, such as the profit and loss statement and the balance sheet. Accounting software usually comes with a default chart of accounts that a business can change to suit how it operates. A chart with too few accounts lumps unlike costs together, while one with hundreds makes reports hard to read and coding inconsistent.

A useful chart follows the questions the owner wants answered. A business that wants to see its margin on each service might keep a separate income account for each one, with the matching direct costs split the same way, while small costs that rarely need separate attention can share an account. Accounts that hold past transactions are usually archived rather than deleted, and bigger changes to the structure are simplest at the start of a financial year, so each year's figures stay comparable.

In Australia

Under section 286 of the Corporations Act 2001, a company must keep written financial records that correctly record and explain its transactions, financial position and performance, and that would let true and fair financial statements be prepared and audited. A chart of accounts is how a bookkeeping system sorts transactions so those statements can be produced from them.

Section 286 is written for companies and certain other entities, while the ATO expects every business's records to hold enough information to show the purpose of each transaction and how it relates to the business's income and expenses.

According to the ATO, a record should generally include a description of the transaction, such as a sale, purchase, wages or rental. The ATO also notes that a business may need to look again at which records it keeps as it changes or grows.

Common mistakes

  • Creating a new account for a one-off transaction, which clutters every report.
  • Changing what an account is used for partway through the year, so it holds two different kinds of transaction.
  • Parking anything hard to classify in a sundry account, so a large slice of spending ends up unexplained.
  • Copying another business's chart without changing it to fit how your own business earns and spends money.
  • Recording the whole of a loan repayment as an expense, when part of it reduces the loan balance held in a liability account.

Common questions

Is a chart of accounts the same as a general ledger?
No. The chart of accounts is the list of account names and codes, with no transactions in it, a little like the contents page of a book. The general ledger is the book itself: every transaction posted to those accounts and the balance each one holds. Changing the chart changes where future transactions can be recorded, while the ledger shows what has actually been recorded so far.
What are the five main types of account in a chart of accounts?
They are assets, liabilities, equity, income and expenses. Assets are things the business owns, or money owed to it, such as bank accounts, equipment and amounts customers owe. Liabilities are what it owes, such as loans and unpaid bills. Equity is the owner's stake in the business. Income records sales and other earnings, and expenses record the costs of running the business. The first three appear on the balance sheet and the last two on the profit and loss statement.
How is a chart of accounts arranged?
Accounts are normally listed in the order the reports use them: balance sheet accounts first, starting with assets, then liabilities and equity, followed by income and then expenses. Many charts number accounts in ranges so each type has its own block, for example codes starting with 1 for assets and 2 for liabilities. Leaving gaps between codes lets new accounts be slotted into the right place later without renumbering.

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Sources

  1. Corporations Act 2001, sections 9 and 286

    Federal Register of Legislation, Office of Parliamentary Counsel. Compilation No. 149, 19 September 2026, released 19 September 2026. Checked 15 October 2026.

    Based on content from the Federal Register of Legislation at 15 October 2026. For the latest information on Australian Government legislation please go to https://www.legislation.gov.au. Licence: CC BY 4.0.

  2. Overview of record-keeping rules for business

    Australian Taxation Office. Current at 18 June 2026 (QC60718), released 18 June 2026. Checked 15 October 2026.

    © Australian Taxation Office for the Commonwealth of Australia Licence: ATO website copyright notice (copy, adapt and distribute, without implying ATO endorsement).