What is a Chart of Accounts?

A chart of accounts (COA) is the complete, structured list of all ledger accounts used by a business to record its financial transactions. It serves as the backbone of the accounting system, organising every transaction into a logical framework that feeds the income statement , balance sheet , and cash flow statement .

Every business that uses double-entry bookkeeping has a chart of accounts, whether it is a simple list in a spreadsheet or a comprehensive structure within accounting software. Getting the chart right from the outset saves significant time when preparing statutory accounts, management reports, and tax returns.

Structure of a Chart of Accounts

A typical UK chart of accounts is organised into five main categories, aligned with the financial statements:

Category	Account Range	Financial Statement
Assets	1000-1999	Balance sheet
Liabilities	2000-2999	Balance sheet
Equity	3000-3999	Balance sheet
Revenue	4000-4999	Income statement
Expenses	5000-9999	Income statement

The numbering ranges are conventions, not rules. Different accounting software packages use different default ranges, and businesses can customise them.

Example Chart of Accounts

Assets (1000-1999)

Code	Account	Type
1000	Fixed assets – plant and machinery	Non-current asset
1010	Fixed assets – office equipment	Non-current asset
1020	Fixed assets – motor vehicles	Non-current asset
1030	Accumulated depreciation – plant and machinery	Contra asset
1040	Accumulated depreciation – office equipment	Contra asset
1050	Accumulated depreciation – motor vehicles	Contra asset
1100	Accounts receivable (trade debtors)	Current asset
1110	Other debtors	Current asset
1120	Prepayments	Current asset
1200	Stock (inventory)	Current asset
1300	Bank current account	Current asset
1310	Bank savings account	Current asset
1320	Petty cash	Current asset

Liabilities (2000-2999)

Code	Account	Type
2000	Accounts payable (trade creditors)	Current liability
2010	Other creditors	Current liability
2020	Accruals	Current liability
2030	VAT liability	Current liability
2040	PAYE and NIC liability	Current liability
2050	Corporation tax liability	Current liability
2060	Deferred income	Current liability
2100	Bank loan	Non-current liability
2110	Director’s loan account	Current or non-current
2200	Provisions	Current or non-current

Equity (3000-3999)

Code	Account	Type
3000	Share capital	Equity
3010	Share premium	Equity
3020	Retained earnings (profit and loss reserve)	Equity
3030	Revaluation reserve	Equity
3100	Dividends paid	Equity

Revenue (4000-4999)

Code	Account	Type
4000	Turnover – product sales	Revenue
4010	Turnover – service income	Revenue
4020	Turnover – commission income	Revenue
4100	Other operating income	Revenue
4200	Interest received	Other income

Expenses (5000-9999)

Code	Account	Type
5000	Purchases (goods for resale)	Cost of sales
5010	Direct labour	Cost of sales
5020	Subcontractor costs	Cost of sales
5030	Carriage inwards	Cost of sales
6000	Salaries and wages	Overhead
6010	Employer’s NIC	Overhead
6020	Pension contributions	Overhead
6100	Rent	Overhead
6110	Business rates	Overhead
6120	Light and heat	Overhead
6130	Insurance	Overhead
6200	Telephone and internet	Overhead
6210	Postage and stationery	Overhead
6220	Software and IT costs	Overhead
6300	Travel and subsistence	Overhead
6310	Motor vehicle expenses	Overhead
6400	Accountancy fees	Overhead
6410	Legal and professional fees	Overhead
6500	Advertising and marketing	Overhead
6600	Depreciation	Overhead
6700	Bad debts	Overhead
6800	Bank charges	Overhead
6810	Interest payable	Finance cost
7000	Corporation tax	Tax

Designing a Chart of Accounts

Principles

Principle	Explanation
Simplicity	Only create accounts you will actually use; avoid unnecessary granularity
Scalability	Leave gaps in the numbering to allow for future accounts
Alignment	Map accounts to the statutory format (Companies Act profit and loss and balance sheet headings)
Consistency	Use the same structure across accounting periods for comparability
Management reporting	Include enough detail to produce useful management accounts

Common Mistakes

Mistake	Problem
Too many accounts	Creates confusion and increases the risk of misposting
Too few accounts	Insufficient detail for analysis and reporting
No logical numbering	Makes finding accounts difficult
Mixing cost categories	Overhead expenses posted to cost of sales distort gross profit
Not mapping to statutory headings	Makes year-end accounts preparation difficult
Inconsistent naming	Causes confusion and misposting

Chart of Accounts and Statutory Reporting

The chart must produce figures that map to the Companies Act 2006 balance sheet and profit and loss account formats. For a small company using Format 1:

Profit and Loss Mapping

Statutory Heading	COA Accounts
Turnover	4000-4020
Cost of sales	5000-5030
Gross profit	Calculated
Distribution costs	Subset of 6000-6999
Administrative expenses	Subset of 6000-6999
Interest payable	6810

Balance Sheet Mapping

Statutory Heading	COA Accounts
Tangible fixed assets	1000-1050 (net of depreciation)
Stocks	1200
Debtors	1100-1120
Cash at bank and in hand	1300-1320
Creditors: amounts falling due within one year	2000-2060
Creditors: amounts falling due after more than one year	2100-2200
Share capital	3000-3010
Profit and loss account	3020

Chart of Accounts in Accounting Software

Most UK accounting software packages (Xero, QuickBooks, Sage, FreeAgent) come with a default chart of accounts that can be customised:

Software	Default COA	Customisation
Xero	Standard UK chart	Add, rename, archive accounts; cannot change account type
QuickBooks	Standard UK chart	Full customisation of codes and names
Sage	Comprehensive numbered chart	Highly customisable
FreeAgent	Simplified, fixed structure	Limited customisation

When setting up a new business, review the default chart and adapt it to the business’s needs before entering any transactions. Restructuring the chart after transactions have been recorded is much harder.

Chart of Accounts for VAT

If the business is VAT-registered, the chart needs accounts for:

VAT output tax (charged to customers)
VAT input tax (reclaimable VAT on purchases)
VAT liability (net amount owed to or due from HMRC)

These accounts feed the VAT return. Correct coding of transactions to the right VAT rate is essential for compliance with Making Tax Digital.

Chart of Accounts and Corporation Tax

The chart of accounts supports tax reporting by:

Separating allowable and disallowable expenses (e.g., entertaining in its own account)
Isolating capital expenditure from revenue expenditure
Tracking depreciation separately so it can be added back in the tax computation
Providing clear categories for the CT600 return boxes

Departmental and Project Coding

For businesses needing management accounting analysis beyond the basic chart, most software supports:

Tracking categories (Xero) or classes (QuickBooks) to tag transactions by department, project, or location
This avoids the need for separate accounts for each department, keeping the chart manageable
Revenue and costs can then be reported by department without multiplying the number of accounts

Reviewing and Maintaining the Chart

The chart of accounts should be reviewed at least annually:

Remove unused accounts (archive, do not delete)
Add accounts for new types of transactions
Reclassify accounts if the business structure has changed
Ensure consistency with prior years for comparative reporting
Check alignment with the statutory format ahead of year-end accounts preparation