Chart of accounts: structure, numbering and an example

A chart of accounts is the numbered list of every account a company records transactions in. It is usually grouped into five types — assets, liabilities, equity, revenue and expenses — each with its own leading digit, then broken into sub-accounts. A clear, stable chart is what makes the trial balance, income statement and balance sheet come out correctly.

The five account groups

Groups 1–3 feed the balance sheet; groups 4–5 feed the income statement. Numbering conventions differ: the Egyptian Unified Accounting System used in the public sector, for example, groups accounts differently, so a private company should pick one scheme and keep it.

• 1 — Assets (normal debit balance): what the company owns or is owed — cash, banks, customers, inventory, fixed assets.
• 2 — Liabilities (normal credit balance): what the company owes — suppliers, loans, taxes and social insurance payable.
• 3 — Equity (normal credit balance): the owners' capital and retained earnings.
• 4 — Revenue (normal credit balance): sales and other income.
• 5 — Expenses (normal debit balance): cost of goods sold, salaries, rent and other costs.

How to number accounts

Each level adds digits to its parent: 1 Assets → 11 Current assets → 111 Cash and banks → 1111 Main cashbox. Posting happens only on the lowest level; the higher levels are totals. Leave gaps between numbers so new accounts can be inserted later without renumbering.

Sample chart for a small trading company in Egypt

• 111 Cash and banks — 1111 Main cashbox · 1112 Bank current account
• 112 Customers (accounts receivable)
• 113 Inventory
• 114 Input VAT · 115 Withholding tax deducted from us (receivable)
• 12 Fixed assets — 121 Equipment · 122 Vehicles · 129 Accumulated depreciation
• 211 Suppliers (accounts payable)
• 212 Output VAT · 213 VAT payable · 214 Withholding tax payable · 215 Salary tax payable · 216 Social insurance payable
• 22 Long-term loans
• 31 Capital · 32 Retained earnings · 33 Current-year profit or loss
• 41 Sales · 42 Sales returns and discounts · 43 Other income
• 51 Cost of goods sold · 52 Salaries and wages · 53 Rent · 54 Utilities · 55 Depreciation expense · 56 Inventory shortage

Tips that save trouble later

• Keep separate accounts for output VAT, input VAT and VAT payable — it makes the monthly return reconcilable.
• Give each bank account and cashbox its own ledger account.
• Do not open an account per customer inside the chart if your system keeps customer sub-ledgers; one control account is enough.
• Avoid "miscellaneous" accounts; they hide errors.
• Once transactions are posted, deactivate an account you no longer need rather than deleting it.