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Chart of Accounts, the Backbone of your Accounting System

When you think about accounting, the first thing that comes to mind is probably “financials statements,” such as the balance sheet, income statement and statement of cash flows. But to get to these financial documents (the end-product), you first need to think about your chart of accounts (COA).

The chart of accounts is comprised of the various accounts used in your business. Some may describe the chart of accounts as “the backbone” of your accounting system. Is a chart of accounts that important? Yes!

According to, the chart of accounts is described as “A listing of all accounts used in the general ledger of an organization. The chart is used by the accounting software to aggregate information into an entity's financial statements.” (The Chart of Accounts, n.d.)

As you begin your small business and start incurring costs, I recommend you start thinking about how you will keep track of these costs and, later, your revenues. The COA will be the starting point to build your financial statements and also can be used by your tax accountant to prepare your returns.

Your COA will need to include the basic building blocks of accounting: assets, liabilities, equity, revenue, expenses, gains, and losses:

  • Assets: Item owned by company, provides an economic value in future periods.

  • Liabilities: Amount ow