What Is a Chart of Accounts? The 5 Account Types, Numbering and How to Set One Up

CFI describes it as a tool that lists all the financial accounts in a company's financial statements and categorises all its financial transactions in an accounting period. Xero compares it to a filing system that organises every transaction into named categories. The point is consistency: once each account has its own name and number, every sale, bill and payment has one obvious home.

The five account types and their number ranges

Here's how CFI and Xero lay out the five types, with the number ranges both of them use:

Account type	Typical range (CFI, Xero)	Examples	Statement
Assets	1000s	Cash, accounts receivable, equipment	Balance sheet
Liabilities	2000s	Accounts payable, loans	Balance sheet
Equity	3000s	Owner's capital, retained earnings	Balance sheet
Revenue	4000s	Sales revenue, service income	Profit and loss
Expenses	5000s	Rent, payroll, marketing	Profit and loss

The last column is what makes the chart useful. Xero explains that assets, liabilities and equity feed the balance sheet, while revenue and expenses feed the profit and loss statement. If you're not sure how those two reports differ, I've covered the profit and loss account vs the balance sheet in another guide.

What goes in each account type

Xero gives these examples for a small business, and CFI adds a few notes on how each group is ordered:

• Assets: cash in the bank, accounts receivable, inventory, equipment and prepaid expenses. CFI says asset accounts follow balance sheet order, current assets first, then fixed assets.
• Liabilities: accounts payable, credit card balances, loans and accrued expenses. CFI points out these usually include the word payable, as in salaries payable or interest payable.
• Equity: owner's capital, retained earnings and owner's draws. For a company, CFI lists common stock, preferred stock and retained earnings.
• Revenue: sales revenue, service income and interest income.
• Expenses: rent, utilities, payroll, office supplies and marketing.

How chart of accounts numbering works

CFI's example for a large business runs like this: assets 1000 to 1999, liabilities 2000 to 2999, shareholder's equity 3000 to 3999, revenue 4000 to 4999 and expenses 5000 to 5999. CFI says small businesses commonly use three-digit account numbers, while large businesses use four digits to leave room to grow.

Two habits from CFI make numbering work over time. Leave blank numbers at the end of each group, so you can add accounts later without renumbering everything. And keep the numbering consistent from one period to the next, so management can roll the figures up and compare them.

The catch: your accounts depend on your business

There's no single correct chart of accounts. CFI's example is a taxi business: it'll have a fuel expense account, which most businesses don't need, but no inventory account at all, because it's a service business that doesn't hold stock. Copying someone else's chart means carrying accounts you'll never use and missing the ones you will.

Size matters less than you'd think, too. Xero says a straightforward list of 30 to 50 accounts is usually enough for a small business. You don't need hundreds of accounts to have good books. You need the right ones, used the same way every time.

How to set up a chart of accounts for a small business

1. List what you own, what you owe, what you earn and what you spend.
2. Group each item under one of the five account types.
3. Give each account a unique name and number, leaving gaps in each range.
4. Keep it to the accounts you really use. Xero's guide is 30 to 50 for a small business.
5. Review it regularly and retire the accounts you no longer use.

Keeping your chart of accounts tidy

Xero recommends reviewing the chart regularly and removing unused accounts, because clean data means faster reporting and fewer errors at tax time. It also suggests splitting receivables into separate categories so you can watch payment patterns. Its reason comes from its own US small business data: US small businesses waited an average of 27.9 days to be paid in Q4 2025, according to Xero. If late payers are a problem, separate receivables categories show you where the waiting happens.

Where the chart of accounts fits in your books

Think of it as the index. CFI defines the chart as the complete list of all the accounts in the general ledger, so the chart names the accounts and the general ledger records every transaction in them. At the end of a period, a trial balance lists each account's closing balance from that ledger. Get the chart right and everything downstream lines up.

My verdict on your chart of accounts

Keep it short and keep it consistent. A tidy chart of accounts is the least exciting part of bookkeeping, and it's the part that makes every report afterwards easier to read. Build it around how your business makes and spends its cash, leave room to grow, and clear out the accounts you've stopped using. It's a small job that pays you back every month.

Frequently asked questions

What are the five types of accounts in a chart of accounts?

Assets, liabilities, equity, revenue and expenses. Assets, liabilities and equity feed the balance sheet; revenue and expenses feed the profit and loss statement.

How many accounts should a small business have?

Xero says a straightforward list of 30 to 50 accounts is usually enough for a small business.

How are accounts numbered in a chart of accounts?

CFI and Xero use the 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue and 5000s for expenses. CFI says small businesses often use three digits and large businesses four.

What's the difference between a chart of accounts and a general ledger?

The chart of accounts is the list of accounts. CFI describes it as the complete list of all the accounts in the general ledger, which is where the transactions themselves are recorded.

Should I delete accounts I don't use?

Xero recommends reviewing your chart regularly and removing unused accounts, because clean data means faster reporting and fewer errors at tax time.