Definition
A chart of accounts is the structured list of every account a business uses to record transactions, grouped into assets, liabilities, equity, income and expenses.
What is a chart of accounts used for?
Each account has a code and a name, and the structure decides what your reports can show. A trading company typically needs accounts for inventory, goods received not invoiced, receivables and payables, input and output tax, cost of goods sold, price variances and exchange gains and losses.
Example: 1200 Inventory, 2110 Goods received not invoiced, 2200 Output VAT, 4010 Sales revenue, 5100 Cost of goods sold.
Too few accounts hide detail; too many make posting error-prone. Groups of companies often share one master chart so their books can be combined in financial consolidation.