As a business owner, you should maintain an organized system for tracking your financial operations. A well-structured chart of accounts is one of the most important tools for this task.

First, the main categories for your chart of accounts should be determined:

• Assets are anything the business owns of value, e.g., cash, accounts receivable, inventory, and fixed assets. 
• Liabilities: These are obligations owed by the business, such as loans, accounts payable, and accrued expenses.
• Equity is the money invested in a business by its owners or shareholders.
• Revenue: This is what is earned through selling products or services
• Cost of Goods Sold: These are all the costs incurred in producing or buying goods sold by your company.
• Expenses: The ongoing operating costs that must be paid to keep a business running.

Assign account numbers

Develop an account numbering system to sort your accounts in a logical order. For instance, you may want to start the number of asset accounts at 1000, liability accounts at 2000, equity accounts at 3000, revenue accounts at 4000, and expense accounts starting with 5000. Choose what best suits your firm. Numbering accounts isn’t necessary, but it is a helpful option to keep things more organized.

Allow room for growth

Do not fill all the numbering spaces in your system so that you can continue adding other accounts. This implies that you may leave room to add accounts even after a category has been assigned. The same applies to revenue and expense categories, where they can be started at 4000 and 5000 to allow for new account entries in these categories. You can always consolidate or renumber the accounts later if need be.

Review and revise periodically

Check your chart of accounts from time to time to see if it’s still a good fit for your business. As your business grows, there might be cases where certain accounts will have to be added or deleted, while others may require reorganization of account numbers. Rearrange any accounts that you’d like to see organized differently on reports, such as transferring some items to sub-categories or including more sub-category levels. Additionally, check the account names to make sure that they are still clear and concise, although descriptive enough.

Archive Unused Accounts

During this process of reviewing the Chart of Accounts,  look for any obsolete accounts. These accounts can be made ‘inactive’ in the books. This change excludes it from an active COA without deleting it. It essentially ‘archives’ the account so it doesn’t show on current reports, while still retaining the information from that account in the books.