starter · Lesson 4 · 9 min
The chart of accounts
A lean, numbered list of every bucket in the ledger. Types drive the statements; names are for humans.
Dotted words have a reminder. Hover on a computer, tap on a phone.
From earlier
- P&L
- QBO
What it is
The chart of accounts (COA) is the complete list of ledger accounts, each with a code, a name, a type, and a tax default. Types are not labels. They decide whether a balance lands on the Balance Sheet or the Profit and Loss, and which section.
| Band (common US Xero) | Types | Statement |
|---|---|---|
| 1000–1999 | Bank, current asset, inventory, prepayment, fixed asset | Balance Sheet — assets |
| 2000–2999 | Current liability, term liability, bank (credit card) | Balance Sheet — liabilities |
| 3000–3999 | Equity | Balance Sheet — equity |
| 4000–4999 | Revenue, other income, sales | Profit and Loss — income |
| 5000–5999 | Direct costs | Profit and Loss — cost of sales |
| 6000+ | Expense, depreciation, overheads | Profit and Loss — expenses |
Xero has no subaccounts
QuickBooks Online lets you nest “Fuel” under “Vehicle.” Xero does not. Keep the Xero chart flat and lean. Grouping happens in report layouts (you drag lines into headings) and in tracking categories (you tag a line with Region or Service line). Do not create “Fuel — Truck 1”, “Fuel — Truck 2” as accounts. That is tracking, or a project.
Control accounts
Accounts receivable and accounts payable are control accounts. Their balances must equal the sum of open invoices and open bills (aged receivables / aged payables). You do not code a bank payment to “Accounts receivable” as a spend-money line if an invoice already exists — you match the payment to the invoice so the control account clears.
A good chart is boring
Twenty well-named expense accounts beat eighty. If you cannot brief a new bookkeeper on what belongs in an account in one sentence, split it or rename it. Never use “Ask my accountant” or “Suspense” as a parking lot that survives month-end.
Check
Choices shuffle each visit. Misses send you back to the section. Look back clears the quiz so you can try again. Practice drills deal a new problem on try-again.
Answer all 2 to check.
1 of 2
Why does account type matter more than the name?
2 of 2
Xero’s substitute for QuickBooks subaccounts is: