A chart of accounts is the numbered or named list of every account a business records money in: assets, liabilities, owner's equity, income and expenses. It decides where each transaction goes, so totals stay consistent from month to month. IRS Publication 583 (December 2024) lists charts of accounts among the documents to keep for a computerized system. A ProfitDrawer bookkeeping spreadsheet uses a shorter version: income and expense categories you set on its Settings tab.
A simple chart for a small service business might look like this:
| Group | Example accounts |
|---|---|
| Assets | Business checking, equipment, money owed by clients |
| Liabilities | Credit card, loan, sales tax collected |
| Equity | Owner contributions, owner draw |
| Income | Service income, product sales, tips |
| Expenses | Advertising, insurance, supplies, software, vehicle, bank fees |
Tips for setting one up:
- Keep it short. 10 to 20 expense accounts is plenty for most small businesses.
- Match your tax form. Naming expense accounts close to the Schedule C expense lines makes year-end totals easier for a sole proprietor.
- Do not rename mid-year. If you change an account, note when and why, so last year's totals still compare.
- Keep owner money separate. Owner draw and owner contributions are not income or expenses.
In a ProfitDrawer bookkeeping spreadsheet, each expense category also has a Business? Yes or No setting, so a category such as Owner draw stays out of profit, total deductions and the tax set-aside (the Tax Summary still lists it, with 0 deductible).
Source: IRS Publication 583: Starting a Business and Keeping Records · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.