Chart of accounts.

In plain English

A chart of accounts is the index of the general ledger, naming and numbering each account so every transaction has one obvious place to go. Accounts are usually numbered in blocks by type, so a reader can tell an asset from an expense by the number alone. A well-built chart is detailed enough to answer real questions and coarse enough to stay usable. Too many accounts and nobody codes consistently; too few and the reports cannot show what actually changed. Because every report rolls up from these accounts, redesigning the chart mid-year makes period comparisons harder.

01Why it matters

If your reports never quite answer the question you have about your own business, the chart of accounts is usually where the answer went missing.

02The math, step by step

Say a shop lumps all spending into one account called expenses. Reports show 180,000 dollars and nothing else. Split into rent 48,000 dollars, wages 96,000 dollars, marketing 21,000 dollars, and other 15,000 dollars, and the same total finally tells you where the money went.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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