What is Chart of accounts?

The chart of accounts is the index of your books. Every transaction lands in at least two of its accounts, so the way it is laid out decides what your reports can tell you. Accounts are grouped into five types: assets (what you own), liabilities (what you owe), equity (the owner’s stake), revenue (what you earn) and expenses (what you spend). Balance sheet accounts carry forward year to year; income statement accounts reset at year-end.

Most charts use number ranges so the type is obvious at a glance, such as 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue and 5000s and up for cost of sales and expenses. Canadian businesses usually add accounts for GST/HST payable and receivable, PST payable, and payroll liabilities like CPP, EI and income tax withheld. Mapping accounts to CRA GIFI codes makes the T2 return far easier.

A good chart is detailed enough to answer the questions you actually ask, and no more. If you want to know food cost separately from beverage cost, they need separate accounts. If you have twenty nearly identical expense accounts that nobody reads, merge them. Changing the chart mid-year is possible but makes comparisons harder, so it pays to set it up carefully before the first transaction is posted.