A chart of accounts is a listing of all the accounts your business uses to record transactions in your general ledger. And what's a general ledger? Well, a general ledger is the record of all financial transactions within your company during a particular accounting cycle.
Picture a big book. Every page of the book has a title that corresponds with an account from the chart of accounts. For instance, page 1 might be titled 1001 Bank. On this page, you'd list the total of the funds you deposited in your company checking account as well as the total of all the withdrawals for a given period-say, a month.
When you're "doing the books," as the saying goes, you record your normal business transactions using information you'll set up in the chart of accounts. Then your accounting software rearranges this info into financial and managerial reports.
Each account in the chart of accounts has a unique number. The number of accounts you can set up in the chart of accounts is virtually unlimited, so you can customize it to fit your business perfectly.
All small business accounting software allows you to set up your chart of accounts from scratch or select one from a list the software company has already set up for you with typical accounts. On this page, I show a list of sample business chart of accounts for my accounting software. I select the one for a web-based business since I sell arts and crafts through a website although the majority of accounts shown are used in any arts or crafts business.
The next page shows the balance sheet portion of my sample chart of accounts for Metropolitan Arts and Crafts.