How to Set Up Your First Chart of Accounts

Setting up your first chart of accounts (COA) is a foundational step for organizing your business finances. Whether you’re a creative agency, designer, or any small business, a well-structured COA helps you track income, expenses, assets, and liabilities efficiently.

What Is a Chart of Accounts?

A chart of accounts is an organized list of all accounts in your business’s financial records. Each account is where a financial transaction is classified, allocated, or posted. Every account has a balance based on additions and subtractions made over time .

Steps to Set Up Your Chart of Accounts

1. Understand the Main Account Categories

Most COAs are divided into five main categories:

• Assets: What your business owns (e.g., cash, equipment).

• Liabilities: What your business owes (e.g., loans, credit cards).

• Equity: Owner’s investment and retained earnings.

• Income (Revenue): Money earned from sales or services.

• Expenses: Costs incurred to run your business (e.g., rent, software, supplies).

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2. List Accounts Under Each Category

Start by listing the most common accounts you’ll use under each category. For example:

• Assets: Checking Account, Accounts Receivable, Equipment

• Liabilities: Credit Card, Loans Payable

• Equity: Owner’s Equity, Retained Earnings

• Income: Design Fees, Consulting Revenue

• Expenses: Rent, Software Subscriptions, Marketing, Office Supplies

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3. Customize for Your Business

Your COA should reflect your unique business needs. For creative agencies or designers, you might add accounts like “Project Income,” “Subcontractor Expenses,” or “Stock Image Purchases” .

4. Use a Logical Numbering System

Assign numbers to each account to keep things organized. For example:

• 1000–1999: Assets

• 2000–2999: Liabilities

• 3000–3999: Equity

• 4000–4999: Income

• 5000–5999: Expenses

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5. Keep It Simple

Start with only the accounts you need. You can always add more as your business grows. Too many accounts can make bookkeeping confusing and reporting cumbersome.

6. Review and Adjust Regularly

As your business evolves, revisit your COA to ensure it still fits your operations and reporting needs.

Best Practices

• Be Consistent: Use the same account names and numbers for similar transactions.

• Automate Where Possible: Many accounting software platforms offer templates or sample COAs for creative businesses, which you can customize.

• Think Ahead: Design your COA with future growth in mind, so you don’t have to overhaul it as your business expands.

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Conclusion

A well-designed chart of accounts is the backbone of your accounting system. It streamlines your reporting, saves time, and gives you a clear picture of your business’s financial health . Start simple, customize for your needs, and adjust as you grow!