Introduction
A well-structured Chart of Accounts (COA) is the foundation of accurate financial reporting and effective bookkeeping. It organizes all financial transactions into standardized categories, enabling businesses to track performance, maintain compliance, and generate meaningful financial statements.
However, a single Chart of Accounts does not fit every business. Different industries require customized account structures based on their operational needs, reporting requirements, and regulatory obligations. This blog explains how to set up a Chart of Accounts for different business types and outlines best practices for long-term scalability.
What Is a Chart of Accounts?
A Chart of Accounts is a systematic listing of all accounts used in a company’s general ledger. Each account is assigned a unique number and grouped under five primary categories:
- Assets
- Liabilities
- Equity
- Revenue
- Expenses
A properly designed COA ensures consistency, simplifies reconciliations, and improves financial analysis across accounting systems such as QuickBooks, Xero, and Zoho Books.
General Best Practices for Setting Up a Chart of Accounts
Before customizing by industry, consider the following principles:
- Keep the structure simple but scalable
- Use logical account numbering
- Separate operating vs non-operating income
- Create expense accounts aligned with management reporting
- Avoid excessive account duplication
- Ensure compliance with tax and regulatory standards
Chart of Accounts for Service-Based Businesses
Key Characteristics
Service businesses primarily earn revenue through professional services rather than product sales.
Common Accounts
Assets
- Cash
- Accounts Receivable
- Prepaid Expenses
Liabilities
- Accounts Payable
- Accrued Expenses
- Taxes Payable
Revenue
- Service Revenue
- Consulting Income
- Retainer Fees
Expenses
- Salaries and Wages
- Professional Fees
- Office Rent
- Software Subscriptions
- Marketing Expenses
Best Practice
Track revenue by service line if multiple services are offered to support profitability analysis.
Chart of Accounts for Retail and E-Commerce Businesses
Key Characteristics
Retail businesses manage inventory, cost of goods sold (COGS), and multiple payment channels.
Common Accounts
Assets
- Inventory
- Cash
- Accounts Receivable
- Payment Gateway Clearing Accounts
Liabilities
- Accounts Payable
- Sales Tax Payable
- Merchant Fees Payable
Revenue
- Product Sales
- Online Sales
- Sales Discounts
Cost of Goods Sold
- Opening Inventory
- Purchases
- Freight-In
- Inventory Adjustments
Expenses
- Advertising
- Shipping Costs
- Platform Fees
- Warehouse Rent
Best Practice
Maintain separate accounts for COGS and operating expenses to ensure accurate gross margin reporting.
Chart of Accounts for Manufacturing Businesses
Key Characteristics
Manufacturers require detailed tracking of production costs and inventory stages.
Common Accounts
Assets
- Raw Materials Inventory
- Work-in-Progress Inventory
- Finished Goods Inventory
- Machinery and Equipment
Liabilities
- Accounts Payable
- Accrued Payroll
- Loan Payable
Revenue
- Product Sales
- Contract Manufacturing Revenue
Cost of Goods Sold
- Direct Materials
- Direct Labor
- Manufacturing Overhead
Expenses
- Maintenance and Repairs
- Factory Utilities
- Depreciation
Best Practice
Segment inventory accounts by production stage for better cost control and compliance.
Chart of Accounts for Freelancers and Sole Proprietors
Key Characteristics
Simplified operations with fewer transactions.
Common Accounts
Assets
- Cash
- Accounts Receivable
Liabilities
- Credit Card Payable
- Taxes Payable
Revenue
- Freelance Income
- Project-Based Fees
Expenses
- Home Office Expenses
- Internet and Phone
- Software Tools
- Travel Expenses
Best Practice
Keep the COA minimal while ensuring tax-deductible expenses are clearly categorized.
Chart of Accounts for Non-Profit Organizations
Key Characteristics
Focus on fund accounting and compliance.
Common Accounts
Assets
- Cash
- Grants Receivable
Liabilities
- Accounts Payable
- Deferred Revenue
Equity (Net Assets)
- Restricted Funds
- Unrestricted Funds
Revenue
- Donations
- Grants
- Program Income
Expenses
- Program Expenses
- Administrative Expenses
- Fundraising Costs
Best Practice
Separate restricted and unrestricted funds to maintain donor and regulatory compliance.
Implementing the Chart of Accounts in Accounting Software
Modern accounting platforms allow customization and automation:
- QuickBooks: Industry-specific COA templates with customization options
- Xero: Flexible account mapping and reporting categories
- Zoho Books: Scalable COA structure with tax integration
Ensure periodic review and updates as the business grows.
Common Mistakes to Avoid
- Overcomplicating the COA
- Mixing personal and business accounts
- Ignoring industry-specific reporting needs
- Failing to review accounts annually
- Poor account naming conventions
Conclusion
A properly designed Chart of Accounts is essential for accurate bookkeeping, financial transparency, and business growth. By customizing the COA based on business type, companies can improve reporting accuracy, support compliance, and make informed financial decisions.
At Trusty Accounts, we help businesses design, implement, and maintain tailored Chart of Accounts aligned with industry best practices and accounting software standards.