Chart of Accounts

The chart of accounts (COA) is the backbone of a company's bookkeeping system. Every financial transaction is recorded into one of the accounts in the COA, which are organized into five major categories: assets, liabilities, equity, revenue, and expenses. Each account is assigned a unique number and name that follows a standardized numbering convention.

Standard numbering convention for startups:

• 1000–1999: Assets (cash, accounts receivable, prepaid expenses, equipment)
• 2000–2999: Liabilities (accounts payable, accrued expenses, loans, deferred revenue)
• 3000–3999: Equity (common stock, retained earnings, additional paid-in capital)
• 4000–4999: Revenue (subscription revenue, professional services, other income)
• 5000–5999: Cost of goods sold (hosting, payment processing fees, customer support)
• 6000–6999: Operating expenses (salaries by department, marketing, rent, SaaS tools)
• 7000–7999: Other expenses (interest, depreciation, one-time costs)

For startups, a thoughtful COA design from the beginning saves enormous time later. Key principles include: keeping it simple but specific enough to answer important questions (e.g., separating "Engineering Salaries" from "Sales Salaries"), aligning with your P&L reporting structure so financial statements are easy to generate, and including accounts that match investor and board reporting expectations. Most VCs expect to see COGS separated from operating expenses, and operating expenses broken down into R&D, S&M (sales and marketing), and G&A (general and administrative).

A practical COA for a seed-stage SaaS company (30–50 accounts):

Assets: 1000-Operating Cash, 1010-Savings/Reserve, 1100-Accounts Receivable, 1200-Prepaid Expenses, 1300-Security Deposits. Liabilities: 2000-Accounts Payable, 2100-Accrued Expenses, 2200-Deferred Revenue, 2300-Credit Card Payable, 2400-Loans Payable. Equity: 3000-Common Stock, 3100-APIC, 3200-Retained Earnings. Revenue: 4000-Subscription Revenue, 4100-Professional Services, 4200-Other Revenue. COGS: 5000-Cloud Hosting, 5100-Payment Processing Fees, 5200-Third-Party APIs, 5300-Customer Support Salaries. OpEx: 6000-Engineering Salaries, 6010-Engineering Contractors, 6100-Sales Salaries, 6110-Sales Commissions, 6200-Marketing Spend, 6300-G&A Salaries, 6400-Office/Remote Stipends, 6500-SaaS Tools and Software, 6600-Legal and Accounting, 6700-Insurance, 6800-Travel.

A common mistake is creating either too few accounts (making it impossible to analyze spending by category) or too many (creating unnecessary complexity and inconsistent categorization). Another frequent error is lumping all contractor spend into one account — separate it by department so you can track engineering contractors vs. marketing contractors vs. operations contractors independently.

The COA should be reviewed annually and updated as the business evolves. When you add a new department, revenue stream, or major expense category, add the corresponding accounts. When you raise a funding round, your investors or auditors may request additional granularity. Building the COA correctly from the start means financial reporting, tax preparation, and board deck generation all become faster and more accurate.