How to set up a chart of accounts

Why it matters

The chart of accounts decides what your reports show. Too few accounts hides costs. Too many makes coding slow and inconsistent.

A clear chart makes bill coding faster and BAS easier.

The steps

1. Start with the five groups. Assets, liabilities, equity, income and expenses.
2. Number the ranges. For example 1000s assets, 2000s liabilities, 3000s equity, 4000s income, 5000s cost of sales and 6000s expenses.
3. List income by stream. Create one income account for each product or service line you want to report.
4. List cost of sales. Include materials, freight in, subcontractors and direct labour.
5. List overheads. Group rent, insurance, wages, vehicles, software, professional fees and bank fees.
6. Add GST accounts. Add a GST liability account and an input tax account if your system needs them.
7. Use tracking for jobs and sites. Use tracking categories or classes for jobs, sites and departments. Do not create an account for each.
8. Set a naming rule and review. Use one style for names. Remove unused accounts once a year.

The Pulsify way

1. Pulsify reads each invoice into line items and gives each line its own account.
2. The account comes from how that supplier's past bills were coded in your accounting system, such as Xero or MYOB.
3. Every value lands in an editable review screen before approval.

Worked example

Example Distribution Pty Ltd sets this short chart.

Number	Account	Type
1100	Bank	Asset
1200	Accounts receivable	Asset
2100	Accounts payable	Liability
2200	GST	Liability
3100	Owner equity	Equity
4100	Product sales	Income
5100	Cost of goods sold	Cost of sales
5200	Freight in	Cost of sales
6100	Wages	Expense
6200	Rent	Expense

Ten accounts are enough to start. The business adds a job tracking category so it can report by site without more accounts.

Common mistakes

• Copying a template with hundreds of unused accounts.
• Creating an account for each customer or job.
• Changing account names without telling the team.
• Mixing cost of sales and overheads.

Next step

Use the Chart of accounts generator first. Then see automated line item coding.