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
More fixed asset and accumulated depreciation accounts
- Fixed assets in the chart of accounts
- Shop fittings in the chart of accounts
- Depreciation accounts in the chart of accounts