Chart of Accounts for Small Business in the US (2025) 

An Overview

If you’re a small business owner, you may have wondered: “Why should I create a chart of accounts?” A well-organized chart of accounts (COA) is important for maintaining accurate financial records, making strategic decisions, and preparing for taxes.

In this guide, we’ll walk you through everything you need to know about creating a chart of accounts, with examples to show how each component is structured. Let’s dive in and explore why a chart of accounts is so valuable for small businesses in the US in 2025.

What is a Chart of Accounts?

A chart of accounts is a structured list of accounts a business uses to record its transactions. Each account has an identification number, name, and description to track assets, liabilities, equity, revenue, and expenses. This organized framework gives you a clear snapshot of your finances and enables easy reporting.

Benefits of a Chart of Accounts for Small Business 

1. Simplifies Decision-Making: By tracking all your transactions in organized categories, you can make more informed business decisions.
2. Streamlines Financial Reporting: A properly structured COA makes it easier to prepare financial statements, essential for tax reporting and business analysis.
3. Enhances Investor Confidence: A well-organized COA gives potential investors or lenders confidence in your business’s financial health.

Components of a Small Business Chart of Accounts

Let’s break down the key elements of a chart of accounts that every small business in the US should include:

1. Assets

Assets are everything your business owns, starting with the account number “1000.” These are divided into current assets (used within one year) and noncurrent assets (long-term use).

• Current Assets: Include items such as cash, accounts receivable, inventory, and prepaid expenses.
  • Examples:
    • 1010 – Cash: Money available in the business bank account.
    • 1020 – Accounts Receivable: Money owed by clients.
• Noncurrent Assets: Long-term assets like buildings, vehicles, and accumulated depreciation.
  • Examples:
    • 2010 – Equipment: Machinery and tools used in business operations.
    • 2020 – Buildings: Business-owned properties.

2. Liabilities

Liabilities represent the debts your business owes and are assigned account numbers starting with “2000.” Liabilities are also categorized as current (short-term, due within a year) and noncurrent (long-term).

• Current Liabilities: Debts payable within one year, like payroll and sales tax payable.
  • Examples:
    • 2010 – Accounts Payable: Amounts owed to suppliers.
    • 2020 – Payroll Liabilities: Money owed to employees.
• Noncurrent Liabilities: Long-term debts such as loans and mortgages.
  • Examples:
    • 3010 – Long-term Loans: Loans that extend beyond one year.
    • 3020 – Mortgages Payable: Debt on business property.

3. Equity

Equity represents the owner’s stake in the business, starting with the account number “3000.” Equity accounts include owner contributions, retained earnings, and stock for corporations.

• Examples:
  • 4010 – Owner’s Equity: The owner’s initial and ongoing investments.
  • 4020 – Retained Earnings: Profits reinvested in the business rather than distributed.

4. Revenue

Revenue is income earned by your business, starting with “4000.” It’s separated into operating revenue (main business income) and non-operating revenue (secondary income sources).

• Operating Revenue: Directly related to business operations, like sales revenue.
  • Example:
    • 5010 – Sales Revenue: Income from primary services or goods.
• Non-Operating Revenue: Secondary sources such as dividends or rental income.
  • Example:
    • 5020 – Interest Income: Earnings from interest-bearing accounts.

5. Expenses

Expenses include all costs incurred in running the business, with account numbers beginning at “5000.” Expenses are categorized as operating (day-to-day expenses) and non-operating (costs unrelated to core operations).

• Operating Expenses: Costs essential to running the business, such as rent, utilities, and payroll.
  
  • Example:
    • 7010 – Payroll: Wages paid to employees.
• Non-Operating Expenses: Costs not directly related to business operations, like depreciation or interest charges.
  • Example:
    • 8010 – Depreciation: Reduction in asset value over time.

Real-World Examples of Charts of Accounts

Here are sample charts of accounts for two common business types:

Medical Practice Chart of Accounts

Account Type	Account Code	Account Name
Assets	1010	Cash – Operating Account
Assets	1030	Medical Supplies Inventory
Liabilities	3010	Accounts Payable
Equity	4010	Owner’s Capital
Revenue	5010	Patient Service Revenue
Expenses	7010	Salaries & Wages

Restaurant Chart of Accounts

Account Type	Account Code	Account Name
Assets	1010	Food Supply Inventory
Liabilities	3010	Accounts Payable
Revenue	5010	Dining Revenue
Expenses	7010	Salaries & Wages

Steps to Create a Chart of Accounts for Your Business

1. Organize Account Types: Begin with five main categories: Assets, Liabilities, Equity, Revenue, and Expenses.
2. Create Subcategories: Identify specific accounts within each category, such as Accounts Payable under Liabilities or Payroll under Expenses.
3. Assign Account Numbers: Use logical numbering for easier tracking (e.g., start Assets with 1000).
4. Add Descriptions: Give each account a brief description to clarify its purpose.

Keeping Your Chart of Accounts Up-to-Date

Regular maintenance is essential for a chart of accounts. Here are tips to keep it accurate:

• Review Annually: At the end of each fiscal year, evaluate and update your COA to remove outdated accounts.
• Add Accounts as Needed: Avoid delaying additions; categorize them immediately for easier reporting.
• Avoid Deletions During the Year: To prevent disruptions, wait until year-end to remove accounts.

Working with Professionals for Your Chart of Accounts

Setting up and managing a chart of accounts can be complex. Consider working with accounting professionals who understand small business needs in the US to ensure accuracy and efficiency. A well-organized COA can streamline tax preparation, attract investors, and simplify financial analysis.

By maintaining an up-to-date chart of accounts, you’ll gain clearer insights into your business’s financial health, helping you to make more informed, data-driven decisions for growth and success. This guide covers the importance of creating a chart of accounts for small businesses in the US for 2025. Implementing an organized COA can be transformative for financial clarity and strategic decision-making in your business.