Understanding the Chart of Accounts

What the chart of accounts is

The chart of accounts is the backbone that organizes your money into named accounts. Every account has a type, an optional code, and a subtype that describes it more precisely. Reports group your numbers by these accounts, and expenses are coded to them.

The five account types

• Asset — things you own: cash, bank/chequing accounts, accounts receivable. Subtypes include cash, bank, receivables.
• Liability — what you owe: accounts payable, sales tax payable. Subtypes include payables, sales_tax.
• Equity — owner's stake in the business.
• Revenue — income you earn, for example Service Revenue or 1:1 Coaching Revenue.
• Expense — money you spend, for example Software Subscriptions, Marketing & Advertising, Contractor Expense.

Accounts are listed grouped by type (assets first, then liabilities, equity, revenue, expenses), then by code.

Account codes and parents

Codes are short numbers that keep accounts in a familiar order — for example 1000 Operating Cash, 1100 Accounts Receivable, 2000 Accounts Payable, 2100 Sales Tax Payable, 4000 Service Revenue, 5100 Software Subscriptions. Accounts can also roll up under a parent account for grouping.

How accounts are used

• Expenses must be coded to an active expense account. When you enter an expense, you pick the expense account it belongs to (for example Software Subscriptions). This is what makes your Profit & Loss break down by category.
• Reports group by account. Profit & Loss lists each expense account with its total; cash/bank accounts feed the bank-reconciliation view.
• Cash and bank accounts (asset accounts with a cash/bank subtype or name) are recognized as your money accounts for reconciliation.

Step-by-step: use accounts when recording an expense

1. Open Expenses → New.
2. In the Account field, choose an active expense account (for example 5100 Software Subscriptions).
3. Enter the amount, tax code, date, and description.
4. Save. The expense now rolls up under that account in your P&L.

Worked example

Northlight Coaching wants its Profit & Loss to separate software from marketing:

1. Confirm the chart has 5100 Software Subscriptions and 5200 Marketing & Advertising as active expense accounts.
2. Code the monthly design-tool subscription to 5100.
3. Code a social-ads charge to 5200.
4. On the P&L, each appears as its own line, so you can see exactly where the money went.

Tips

• Only expense-type accounts can be selected for expenses; if an account doesn't appear, check that it's an active expense account.
• Keep your expense accounts meaningful but few — a handful of clear categories reports better than dozens of narrow ones.
• Use consistent codes so accounts sort in a predictable order across reports.

FAQ

Do invoices post to a revenue account? Reports treat invoice income as your sales/service revenue. Invoices don't require you to pick a revenue account line-by-line — revenue is summarized from invoice subtotals.

Why can't I pick a cash account for an expense? Expenses record what a cost was for, so they require an expense account. Cash and bank accounts are asset accounts used for reconciliation, not expense coding.

Is there a general ledger? There is a posted Transactions ledger for double-entry records. Note that today's Profit & Loss is calculated directly from your source documents (invoices, expenses, bills) rather than the ledger — see Reading the Dashboard and Reports.