What is a Chart of accounts?

How a chart of accounts is structured

Accounts are grouped by type, and each type behaves differently in your reports:

• Revenue — what you sell, including GST-free sales kept separate
• Direct costs — the cost of what you sold
• Expenses — the cost of operating
• Assets — what you own, including bank accounts and equipment
• Liabilities — what you owe, including GST and superannuation payable
• Equity — owner contributions, drawings and retained earnings

Revenue, direct costs and expenses become your profit and loss statement. Assets, liabilities and equity become your balance sheet.

Numbering, and why gaps matter

Accounts are usually numbered in ranges — 200s revenue, 300s direct costs, 400s and 500s expenses, 600s and 700s assets, 800s liabilities, 900s equity. Within each range the codes leave gaps, typically jumping in fours or fives.

Those gaps are deliberate. When you need a new expense account that belongs between two existing ones, you drop it into the gap rather than renumbering the chart. A chart numbered 1, 2, 3 forces you to either renumber everything or put the new account somewhere illogical.

Fewer accounts, not more

The most common mistake is having too many accounts. Charts grow because adding an account is easy and deleting one feels risky, and after a few years the profit and loss statement has stopped being readable.

The test is decision-usefulness: if you would never make a different decision because two accounts are separate, make them one account. Most Australian small businesses run well on 40 to 60 accounts.

GST codes and BAS labels

In Australia each account should carry a default GST code, so coding stays consistent — GST for taxable items, GST-free for things like most basic food and most health and education, input taxed for residential rent and most financial supplies, and not-reportable for anything that never appears on a BAS.

Accounts also map to BAS labels: G1 total sales, G10 capital purchases, G11 non-capital purchases, 1A GST on sales, 1B GST on purchases, and W1 and W2 for wages and PAYG withholding. Setting those relationships up once is what makes BAS preparation a summary rather than an investigation.

Key takeaways

• A chart of accounts defines how every transaction is categorised
• Number in ranges with gaps, so new accounts can be inserted in the right place
• Fewer accounts beats more — merge anything that would not change a decision
• Set a default GST code per account to keep coding consistent
• Map accounts to BAS labels so reporting falls out of the ledger

A free chart of accounts template with 52 Australian accounts, GST codes and BAS labels is available to download, and it pairs with the general ledger template.