Chart of Accounts Template: Setup Guide for QuickBooks, Xero & Sage (2026)
Your chart of accounts is the backbone of your bookkeeping. Get it right from the start and everything else – reports, tax prep, month-end close – falls into place. Get it wrong and you’ll spend hours fixing categorization mistakes every quarter.
Who this guide is for
If you’re setting up a new company in QuickBooks Online, Xero, or Sage and staring at the default chart of accounts wondering what to keep, what to delete, and what to add – this is for you. Same goes if you inherited a messy COA from a previous bookkeeper and need to clean it up.
We’ll cover the standard numbering system, give you a ready-to-use template with account numbers, show how different industries need different structures, and walk through setup in each major platform. Everything is geared toward US small businesses: LLCs, S-Corps, sole proprietors, and small partnerships.
What is a chart of accounts (and why it matters)
A chart of accounts is the complete list of every financial account in your bookkeeping system. Every dollar that comes in or goes out of your business gets assigned to one of these accounts. When you pay your office rent, that goes to a Rent Expense account. When a customer pays an invoice, that goes to a Revenue account. When you buy inventory, that hits an Inventory Asset account.
Think of it as a filing cabinet for your money. Each drawer (account type) holds folders (individual accounts) that organize your transactions into categories that make sense for reporting, tax prep, and understanding where your cash actually goes.
Why a good COA saves you money
A well-structured chart of accounts maps directly to the line items on your business tax return. For sole proprietors and single-member LLCs filing Schedule C, that means each expense account corresponds to a specific IRS deduction category. When your COA is clean, your CPA (or your tax software) can pull the numbers without manual sorting.
When your COA is messy – vague categories, duplicated accounts, personal and business expenses mixed together – someone has to untangle it all before filing. That “someone” is either you (hours of your time) or your accountant (at $150–$400/hour). A couple of hours spent setting up your COA properly can save you thousands of dollars over the life of your business.
Every accounting platform – QuickBooks Online, Xero, Sage, FreshBooks, Wave – creates a default chart of accounts when you set up a new company. These defaults are a reasonable starting point, but they’re generic. They include accounts you’ll never use and miss accounts specific to your industry. The goal of this guide is to help you turn that generic default into something that actually fits your business.
The standard numbering system
Most small business accounting uses a four-digit numbering convention. The first digit tells you the account type. The remaining digits identify the specific account. Here’s the standard breakdown:
| Number Range | Account Type | What Goes Here | Examples |
|---|---|---|---|
| 1000–1999 | Assets | Things your business owns or is owed | Cash, bank accounts, accounts receivable, equipment, inventory |
| 2000–2999 | Liabilities | Money your business owes | Credit cards, loans, accounts payable, sales tax payable |
| 3000–3999 | Equity | Owner’s investment and retained earnings | Owner’s equity, retained earnings, owner draws |
| 4000–4999 | Revenue | Money coming in | Service income, product sales, interest income |
| 5000–5999 | Cost of Goods Sold | Direct costs of producing what you sell | Materials, direct labor, shipping costs |
| 6000–8999 | Operating Expenses | Costs of running the business | Rent, utilities, insurance, marketing, payroll |
| 9000–9999 | Other Income/Expenses | Non-operating items | Interest expense, gain/loss on asset sales |
Leave gaps between account numbers
Use increments of 10 or 100 between accounts. If your first expense account is 6000 (Advertising), make the next one 6100 (Bank Fees), not 6001. This way you can insert new accounts later without renumbering everything. You will add accounts over time – every business does. Leaving room now prevents a reorganization headache later.
Complete small business COA template
This template works for most US small businesses – service companies, consultants, freelancers, and small product businesses. It’s designed to map cleanly to Schedule C (Form 1040) for sole proprietors or to the standard categories your CPA expects for S-Corp and partnership returns.
Assets (1000–1999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 1000 | Business Checking | Bank | Primary business checking account |
| 1050 | Business Savings | Bank | Business savings or money market account |
| 1100 | Accounts Receivable | Accounts Receivable | Money owed to you by customers |
| 1200 | Inventory | Other Current Asset | Products held for sale (if applicable) |
| 1300 | Prepaid Expenses | Other Current Asset | Insurance, rent, or subscriptions paid in advance |
| 1400 | Undeposited Funds | Other Current Asset | Checks/payments received but not yet deposited |
| 1500 | Furniture & Equipment | Fixed Asset | Desks, computers, machinery |
| 1510 | Accumulated Depreciation – F&E | Fixed Asset | Accumulated depreciation on furniture & equipment |
| 1600 | Vehicles | Fixed Asset | Business vehicles |
| 1610 | Accumulated Depreciation – Vehicles | Fixed Asset | Accumulated depreciation on vehicles |
Liabilities (2000–2999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 2000 | Accounts Payable | Accounts Payable | Money you owe to vendors |
| 2100 | Business Credit Card | Credit Card | Primary business credit card balance |
| 2200 | Sales Tax Payable | Other Current Liability | Sales tax collected but not yet remitted |
| 2300 | Payroll Liabilities | Other Current Liability | Withheld taxes, benefits owed to employees |
| 2400 | Line of Credit | Other Current Liability | Business line of credit balance |
| 2500 | Loan – SBA / Term | Long Term Liability | SBA loan, term loan, or equipment financing |
| 2600 | Vehicle Loan | Long Term Liability | Auto loan for business vehicle |
Equity (3000–3999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 3000 | Owner’s Equity / Capital | Equity | Owner’s investment in the business |
| 3100 | Owner’s Draw | Equity | Money taken out by the owner |
| 3200 | Retained Earnings | Equity | Accumulated profit/loss from prior years |
Revenue (4000–4999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 4000 | Service Revenue | Income | Revenue from services provided |
| 4100 | Product Sales | Income | Revenue from products sold |
| 4200 | Shipping / Delivery Revenue | Income | Shipping charges billed to customers |
| 4500 | Discounts Given | Income | Contra-revenue: discounts applied to sales |
| 4600 | Returns & Refunds | Income | Contra-revenue: customer refunds and returns |
| 4900 | Other Income | Other Income | Interest earned, miscellaneous income |
Cost of Goods Sold (5000–5999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 5000 | Cost of Goods Sold | COGS | Direct cost of products sold |
| 5100 | Materials & Supplies | COGS | Raw materials, components, production supplies |
| 5200 | Direct Labor | COGS | Wages for employees directly producing goods/services |
| 5300 | Shipping & Freight | COGS | Costs of shipping products to customers |
| 5400 | Subcontractor Costs | COGS | Payments to subcontractors for project work |
Operating Expenses (6000–8999)
| Account # | Account Name | Type | Schedule C Line |
|---|---|---|---|
| 6000 | Advertising & Marketing | Expense | Line 8 |
| 6100 | Bank Fees & Service Charges | Expense | Line 27a (Other) |
| 6200 | Car & Truck Expenses | Expense | Line 9 |
| 6300 | Commissions & Fees | Expense | Line 10 |
| 6400 | Contract Labor | Expense | Line 11 |
| 6500 | Depreciation | Expense | Line 13 |
| 6600 | Insurance (non-health) | Expense | Line 15 |
| 6700 | Interest – Mortgage | Expense | Line 16a |
| 6710 | Interest – Other | Expense | Line 16b |
| 6800 | Legal & Professional Services | Expense | Line 17 |
| 6900 | Office Expenses | Expense | Line 18 |
| 7000 | Rent – Business Property | Expense | Line 20b |
| 7100 | Repairs & Maintenance | Expense | Line 21 |
| 7200 | Software & Subscriptions | Expense | Line 27a (Other) |
| 7300 | Supplies | Expense | Line 22 |
| 7400 | Taxes & Licenses | Expense | Line 23 |
| 7500 | Travel | Expense | Line 24a |
| 7600 | Meals (50% deductible) | Expense | Line 24b |
| 7700 | Utilities | Expense | Line 25 |
| 7800 | Wages & Salaries | Expense | Line 26 |
| 7900 | Payroll Taxes | Expense | Line 23 |
| 8000 | Employee Benefits | Expense | Line 14 |
| 8100 | Continuing Education & Training | Expense | Line 27a (Other) |
| 8200 | Telephone & Internet | Expense | Line 25 |
| 8300 | Postage & Shipping | Expense | Line 27a (Other) |
| 8500 | Miscellaneous Expenses | Expense | Line 27a (Other) |
Other Income & Expenses (9000–9999)
| Account # | Account Name | Type | Description |
|---|---|---|---|
| 9000 | Interest Income | Other Income | Interest earned on bank accounts |
| 9100 | Gain / Loss on Asset Sale | Other Income | Proceeds minus book value when selling assets |
| 9500 | Interest Expense | Other Expense | Interest on business loans and credit lines |
| 9900 | Penalties & Fines | Other Expense | Late fees, IRS penalties (non-deductible) |
Chart of accounts template Excel format (import-ready)
"Chart of accounts template excel" is usually code for "I need a file I can import without cleanup." Use a single worksheet with these columns and keep one row per account.
| Column | Required | Example |
|---|---|---|
| Account Number | Yes (recommended in QBO/Xero) | 6100 |
| Account Name | Yes | Bank Fees & Service Charges |
| Account Type | Yes | Expense |
| Detail Type / Tax Type | Platform-specific | Bank Charges / 20% VAT on Expenses |
| Description | No | Monthly banking and card processing charges |
| Status | No | Active |
Import hygiene checklist
Use plain text only for account names, avoid duplicate numbers, and keep parent/child naming consistent before import. Test with 5-10 accounts first, then import the full sheet.
For tax-heavy ledgers, pair your COA setup with the right tax reconciliation process: VAT reconciliation (UK) or sales tax reconciliation (US).
Mapping your COA to Schedule C
If you’re a sole proprietor or single-member LLC, your business income and expenses go on Schedule C of your Form 1040. The IRS has 27 expense line items on Schedule C, and your chart of accounts should map to them without a lot of guesswork.
Why this mapping matters
When your COA categories align with Schedule C lines, tax prep becomes a reporting exercise instead of a sorting exercise. Your CPA opens your P&L, sees “Advertising & Marketing: $4,200” and drops it straight into Line 8. No questions, no back-and-forth emails, no extra billing for “cleanup work.”
The template above already includes Schedule C line references for each expense account. If you use it as your starting point and resist the urge to create oddly named custom categories, you’ll save yourself significant time and money every April.
A few Schedule C specifics worth noting:
Meals are 50% deductible (Line 24b)
Keep meals in their own account, not lumped in with “Travel.” Your CPA needs to apply the 50% limitation at tax time, and that’s much easier when meals are already separated. The temporary 100% deduction for restaurant meals expired at the end of 2022 – it’s back to 50% now.
Home office deduction (Line 30)
If you use the actual expense method (not the simplified $5/sq ft method), you’ll need to track mortgage interest, property taxes, insurance, utilities, and repairs for your home. Some folks create sub-accounts under each expense type. Others track home office separately with a single “Home Office Expense” account and let their CPA calculate the business-use percentage. Either approach works – just be consistent.
Vehicle expenses (Line 9)
The IRS gives you two methods: standard mileage rate ($0.70/mile in 2026) or actual expenses. If you use actual expenses, you need to track gas, maintenance, insurance, and depreciation in separate accounts – or at least as a single “Car & Truck Expenses” account. If you use the standard mileage rate, you don’t need detailed vehicle expense accounts at all – just record the mileage deduction amount at year-end.
The “Other Expenses” catch-all (Line 27a)
Anything that doesn’t fit the named lines goes here: software subscriptions, bank fees, professional development, postage. The IRS expects you to itemize these on Line 27a with descriptions. Having separate accounts in your COA for each of these categories (like we do in the template above) makes that itemization automatic.
Industry-specific templates
The base template above works for most small businesses, but different industries need different accounts. Here are the key additions for four common business types.
Service business (consultants, agencies, freelancers)
Service businesses usually don’t need inventory or COGS accounts. Your main costs are people and overhead. Add these:
- 5400 Subcontractor Costs – 1099 contractors working on client projects
- 4050 Retainer Revenue – If you bill retainers, separate them from project revenue
- 4100 Project Revenue – One-off project or engagement income
- 7250 Professional Memberships – Industry associations, certifications
You can safely remove or inactivate 1200 (Inventory), 5000 (COGS), 5100 (Materials), and 5300 (Shipping) from the base template unless you also sell physical products.
E-commerce business
E-commerce has more complexity around COGS, shipping, and platform fees. Add these:
- 5050 Packaging Materials – Boxes, tape, bubble wrap, labels
- 6050 Platform Fees – Shopify/Amazon/Etsy – Monthly fees and per-sale commissions
- 6060 Payment Processing Fees – Stripe, PayPal, Square transaction fees
- 1210 Inventory in Transit – Goods ordered from suppliers but not yet received
- 4600 Returns & Refunds – Already in the base template but critical for e-commerce
Separate your platform fees from your advertising spend. They look similar but they’re categorized differently for tax purposes. The monthly Shopify subscription is an operating expense. Amazon FBA fees are effectively COGS.
Restaurant or food service
Food businesses have unique cost structures around ingredients, food waste, and tips. Add these:
- 5010 Food Costs – Ingredients and raw food purchases
- 5020 Beverage Costs – Alcohol, coffee, soft drinks for resale
- 5060 Smallwares & Disposables – Plates, cups, napkins, utensils
- 7850 Tips Paid to Employees – Tip pass-through to staff
- 6650 Liquor License & Permits – Annual licenses and health permits
Restaurants should track food cost as a percentage of revenue – industry standard is 28–35%. Having a separate account makes that calculation easy. If food and beverage costs are in a single “Supplies” account, you’ll never know your actual food cost percentage.
Freelancer / solopreneur
If you work alone with minimal overhead, you can trim the base template significantly. Keep it simple:
- Remove all COGS accounts unless you also sell physical products
- Remove payroll accounts if you have no employees (you pay yourself through draws)
- Add 6610 Health Insurance – Self-employed health insurance premiums (deductible on Form 1040, Line 17)
- Add 7450 Self-Employment Tax – Track estimated quarterly payments
A freelance graphic designer might need 25 total accounts. A freelance web developer who subcontracts work might need 30. Either way, it shouldn’t take more than 15 minutes to set up. The template above is your starting point – just delete what you don’t need.
Five mistakes that create headaches at tax time
Mistake #1: Too many accounts
If you have separate accounts for “Staples,” “Office Depot,” and “Amazon Office Supplies,” you’ve organized by vendor, not by category. Your CPA doesn’t care where you bought the paper clips – they care that it’s an office expense. Consolidate vendor-specific accounts into category-based ones. A good rule: if two accounts would go on the same line of your tax return, consider merging them.
Mistake #2: Too few accounts
The opposite problem. If everything goes into “General Expenses” or “Miscellaneous,” your financial reports are useless. You can’t tell where your money is going, your CPA has to sort through every transaction at year-end, and you lose visibility into cost trends. Every meaningful spending category should have its own account.
Mistake #3: Mixing personal and business transactions
Using your personal credit card for business expenses and your business account for personal purchases creates a tangled mess. If you must make a personal purchase from a business account (it happens), code it to Owner’s Draw (3100). Don’t try to categorize personal expenses as business expenses, and don’t dump them into a random expense account. The IRS looks for commingling of funds, especially during audits of sole proprietors.
Mistake #4: Inconsistent naming conventions
Pick a naming style and stick with it. “Advertising & Marketing” and “Auto Expense” and “Expenses - Legal” in the same COA make it harder to find accounts and create confusion about what goes where.
Good pattern: [Category] [Subcategory]. Examples: “Insurance – General Liability,” “Insurance – Professional,” “Interest – Mortgage,” “Interest – Other.” This keeps related accounts grouped together in alphabetical lists and makes autocomplete suggestions more useful.
Mistake #5: Never cleaning up inactive accounts
Business changes. The vendor account you created two years ago might not apply anymore. The expense category from a project that ended last quarter just adds clutter. Review your COA at least once a year – ideally before your fiscal year closes. Inactivate accounts with zero balances that you no longer use. Don’t delete them (you’ll lose historical data), just inactivate them so they stop appearing in dropdown menus and cluttering your reports.
Setting up your COA in QuickBooks Online
QuickBooks Online creates a default chart of accounts based on the industry you select during setup. Here’s how to customize it to match the template above.
Step 1: Review the defaults
Go to Settings (gear icon) > Chart of Accounts. QBO will have pre-populated 40–80 accounts depending on your industry selection. Sort by Account Type to see everything organized by category. You’ll notice several accounts you’ll never use – “Amortization Expense,” “Ask My Accountant,” “Unapplied Cash Payment Income” – these are common defaults that most small businesses can safely ignore.
Step 2: Enable account numbers
QBO doesn’t show account numbers by default. Turn them on: Settings > Account and Settings > Advanced > Enable account numbers. This lets you assign the 1000–9999 numbering scheme from our template. It also makes your COA sort in a logical order instead of alphabetically.
Step 3: Add missing accounts
Click New to add accounts from the template that QBO didn’t create automatically. For each one, select the correct Account Type (Expense, Income, Bank, etc.) and Detail Type (the sub-classification that QBO uses internally). Assign the account number from the template. The Detail Type matters for QBO’s built-in reports – pick the closest match.
Step 4: Inactivate accounts you don’t need
Click the dropdown arrow next to any account and select Make inactive. This hides the account from transaction entry and reports but preserves it for historical reference. Don’t worry about getting this perfect on day one – you can always reactivate accounts later if you need them.
Step 5: Rename vague accounts
QBO’s defaults use names like “Other General and Administrative Expenses” and “Other Miscellaneous Income.” Rename these to match your actual business activities. Click on the account, edit the name, and save. The clearer your account names, the easier it is to categorize transactions correctly – whether you’re doing it manually, using QBO’s bank rules, or using an automation tool like CodeIQ.
QBO import option
If you’re setting up a brand new QBO company, you can import a chart of accounts from a CSV or Excel file. Go to Settings > Import Data > Chart of Accounts. Format your spreadsheet with columns for Account Name, Type, Detail Type, and optional account number. This is faster than creating 40+ accounts one at a time. Just make sure the Type and Detail Type values exactly match QBO’s expected values, or the import will fail with unhelpful error messages.
Setting up your COA in Xero
Xero takes a slightly different approach than QuickBooks. Account numbers are built in from the start, and the default COA is already numbered (though the numbers may not match the convention you want).
Step 1: Access the chart of accounts
Go to Accounting > Chart of Accounts. Xero’s defaults typically use a 3-digit numbering system (200 for Sales, 400 for Advertising, etc.). You can change these to 4-digit numbers to match the standard template, but you don’t have to – the numbering convention is less important than having the right accounts with clear names.
Step 2: Add accounts
Click Add Account. Xero requires you to select an Account Type (Revenue, Expense, Direct Costs, etc.) and optionally assign a Tax Rate default. Setting the default tax rate for each account saves time during transaction entry – if your advertising is always taxable, set the default on the account and it’ll auto-populate.
Step 3: Archive unused accounts
Xero calls it “archiving” rather than “inactivating.” Select the accounts you don’t need, click Archive. Archived accounts disappear from dropdown menus but remain accessible for historical reporting. You can also delete accounts that have never been used – but be careful, deleted accounts can’t be recovered.
Step 4: Set up tracking categories (optional)
Xero has a feature called Tracking Categories that lets you add dimensions to transactions without creating extra accounts. For example, instead of separate revenue accounts for each service line, you can have one “Service Revenue” account and use tracking categories for “Consulting,” “Implementation,” “Support.” This keeps your COA cleaner while still giving you reporting detail.
Xero’s locked system accounts
Xero has several system accounts you can’t delete or rename: Accounts Receivable, Accounts Payable, Sales Tax, Historical Adjustment, Rounding, Realized Currency Gains, and Unrealized Currency Gains. These exist for internal accounting purposes. Don’t worry about them – they’ll rarely show up in your day-to-day bookkeeping. Just know they’re there and leave them alone.
Setting up your COA in Sage
Sage Business Cloud Accounting (the online version most small businesses use) is more opinionated about its chart of accounts than QuickBooks or Xero. It groups accounts into predefined categories and doesn’t give you as much flexibility to renumber.
Step 1: Review the default categories
Go to Settings > Chart of Accounts. Sage uses its own numbering system and organizes accounts into categories: Current Assets, Fixed Assets, Current Liabilities, Income, Cost of Sales, and Expenses. The structure is similar to our template but the numbers will be different. Focus on having the right account names and types rather than matching specific numbers.
Step 2: Create custom accounts
Click New Ledger Account. Select the category, enter a name, and Sage assigns a number automatically. You can override the number in most cases. Sage is stricter about what account types are allowed in each category – you can’t put an income account in the expense category, for example.
Step 3: Customize tax defaults
For US users, Sage lets you assign default tax treatments to expense and income accounts. Set these up correctly and you won’t have to think about tax classification on every transaction. Sage’s tax handling works differently from QBO and Xero, so if you’re migrating from another platform, double-check that your tax settings carried over correctly.
One practical note about Sage: its chart of accounts import functionality is more limited than QBO or Xero. If you’re setting up from scratch, plan to create accounts manually. It’s tedious but takes about 30 minutes with the template open in another tab.
Automating transaction coding with your COA
Setting up a great chart of accounts is the foundation. But the real time drain in bookkeeping isn’t the COA setup – it’s the ongoing work of assigning every transaction to the right account, month after month.
A typical small business has 100–500 transactions per month. Categorizing each one manually takes 30 seconds to 2 minutes, depending on complexity. That’s 1–15 hours per month of repetitive clicking and decision-making. And it never ends – next month, you do it all over again.
How CodeIQ works with your chart of accounts
CodeIQ reads your chart of accounts directly from your accounting platform at the start of each session. It doesn’t impose its own categories or force you into a standard template. Whatever accounts you’ve set up – including custom ones specific to your industry – that’s what CodeIQ uses to code your transactions.
Here’s the practical workflow:
- It pulls your chart of accounts from QuickBooks, Xero, or Sage via API
- It analyzes your historical general ledger to learn how you categorize transactions
- It processes your bank statement and assigns each transaction to the right account, the way you would
- You review and approve, then it posts back to your platform – reconciled and ready
If you rename an account, add a new one, or restructure your COA, CodeIQ picks up the changes automatically on the next session. No reconfiguration needed. And because it learns from corrections, it gets more accurate the more you use it.
The combination of a well-structured COA and an automation tool means your bookkeeping workflow looks like this: upload your bank statement, wait about two minutes, review the coded transactions, approve, and you’re done. That’s a month of bookkeeping completed in the time it used to take to categorize 20 transactions manually.
Bank rules vs. full automation
QuickBooks and Xero both have a built-in “bank rules” feature that auto-categorizes transactions matching specific criteria. These work fine for the simplest, most repetitive transactions – your monthly Spotify charge, your recurring rent payment. But they fall apart quickly.
Bank rules can’t handle vendor names that vary slightly (AMZN MKTP vs AMAZON.COM vs Amazon Prime), can’t match invoices to payments, can’t detect transfers between your own accounts, and can’t handle the 30–40% of transactions that don’t follow simple patterns. A tool like CodeIQ uses pattern learning, historical analysis, and crowd-sourced intelligence from thousands of businesses to handle the cases that rules can’t.
Your COA is set up. Now automate the coding.
CodeIQ reads your chart of accounts from QuickBooks, Xero, or Sage and codes your transactions accordingly. Upload a bank statement and see it in action – processing takes about two minutes.
Try CodeIQ FreeFrequently Asked Questions
What is a chart of accounts and why does my small business need one?
A chart of accounts (COA) is a complete list of every financial account in your bookkeeping system, organized by type: assets, liabilities, equity, revenue, and expenses. Think of it as the filing system for your money. Every transaction you record gets assigned to one of these accounts. Without a well-organized COA, your financial reports will be confusing, tax prep will take longer, and you won’t have clear visibility into where your money is actually going. Even a one-person freelance business benefits from having a clean COA, because it maps directly to the line items on your Schedule C or business tax return.
How many accounts should a small business chart of accounts have?
Most small businesses do well with 30 to 60 accounts total. A sole proprietor or single-member LLC might need as few as 25. A more complex business with inventory, multiple revenue streams, or employees might need 60 to 80. The sweet spot is enough detail to make your financial reports useful, but not so many accounts that you spend time agonizing over which one to use. If you have three separate accounts for “Office Supplies,” “Office Materials,” and “Office Sundries,” you have too many. If everything goes into a single “General Expenses” account, you have too few.
What account numbering system should I use?
The standard numbering convention for small businesses uses five ranges: 1000–1999 for assets (bank accounts, accounts receivable, equipment), 2000–2999 for liabilities (credit cards, loans, accounts payable), 3000–3999 for equity (owner’s equity, retained earnings), 4000–4999 for revenue (sales, service income, other income), and 5000–9999 for expenses (rent, utilities, supplies, payroll). Within each range, leave gaps between account numbers so you can add new accounts later without renumbering everything.
Should I customize the default chart of accounts in QuickBooks or Xero?
Yes, and you should do it before you start entering transactions. Both QuickBooks Online and Xero create a default chart of accounts when you set up a new company, but these defaults are generic. They include accounts you probably don’t need and they’re missing accounts specific to your industry. Delete or inactivate accounts you won’t use, rename vague accounts to match how you actually think about your spending, and add any industry-specific accounts you need. Doing this cleanup upfront saves significant time later.
How does my chart of accounts affect my tax return?
Your chart of accounts directly maps to the line items on your business tax return. For sole proprietors and single-member LLCs, that means Schedule C of Form 1040. Each expense account in your COA should correspond to a deduction category the IRS recognizes: advertising (Line 8), car and truck expenses (Line 9), insurance (Line 15), office expenses (Line 18), rent (Line 20b), and so on. If your COA is well-structured, your CPA or tax software can pull the right numbers with minimal manual work.
Can I change my chart of accounts after I’ve been using it?
Yes, but it’s easier to do between fiscal years. You can merge accounts, rename accounts, add new ones, or inactivate old ones at any time in QuickBooks, Xero, or Sage. The key rule is: never delete an account that has transactions in it. Inactivate it instead, so historical reports still work. If you’re making major structural changes mid-year, consider doing it at a quarter boundary and document what you changed so your year-end reports make sense. Tools like CodeIQ adapt automatically to COA changes because they read your current chart of accounts each time you start a new session.