Foundation 3 of 20 · Record
What Is a Chart of Accounts? A Sample for Small Business
Miscellaneous Is Where Answers Go to Hide.
"Where do I put the things that don't fit anywhere?" If your biggest expense line is "Miscellaneous," your books can list everything and explain nothing. Here is what a chart of accounts is, and how to build a short one you will actually use.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is a Chart of Accounts?
Textbook Definition
A chart of accounts is an organized listing of all accounts used in a business's general ledger, typically grouped into assets, liabilities, equity, revenue, and expenses, with each transaction posted to one account.
In Plain English
A chart of accounts is a short list of named drawers for your money. Kinds of money coming in, kinds of money going out. Every line in your books goes in exactly one drawer, so you can total any drawer in a minute.
Why It Matters
Why Does One Big Category Hide Problems?
A ledger with one category is a list, not a set of books. It can tell you what happened on Tuesday. It cannot tell you how much you spent on wages this year, or which service actually makes money. Those are questions about kinds of things, and you can only answer them if every line has a kind.
The money-in drawers are your revenue, split by what customers pay you for. The money-out drawers are your expenses, split by what you pay for. Every chart needs one "everything else" drawer. The rule is that it stays the smallest one.
Signs you have this problem:
- Miscellaneous or "Other" is one of your biggest lines.
- You cannot say what you spent on one cost, like fuel or supplies, without going line by line.
- You do not know which of your services or products makes the most money.
- Your categories change from month to month.
- Your chart has fifty categories and you stopped using it.
- Your bookkeeper asks what something was for, every month.
What It Looks Like
What It Looks Like When Everything Is Miscellaneous
From the Fabled Forest · Chapter 3
Otto the Octopus learned to keep a ledger, and his turtle, Tobias, writes every line in perfect handwriting. Six months of deliveries, parcels, rentals, tape, and wages, all in order. Every single line is filed under Miscellaneous.
When the bookkeeper asked which of Otto's four services made the most money, Otto said rentals. Everybody rents his carts. How did he know? Because he was always fixing them.
Doctor Owl built him a chart with four kinds of money in, six kinds out, and one small "everything else." Tobias recoded a month. Rentals brought in fourteen coins. Cart repairs cost nineteen. Otto's favorite part of the business had lost money five months out of six, and the boring deliveries had been paying for everything.
Otto's story is Chapter 3 of Accounting and Finance for Small Businesses, Book 2 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Build a Simple Chart of Accounts in 5 Steps
Most owners who sit down to do this write a hundred categories. Aim for about twelve.
List what customers pay you for.
Three to five kinds of revenue. Deliveries, repairs, product sales, rentals. Split them by the way you would want to compare them later.
List what you pay for.
Six to eight kinds of expenses: wages, rent, supplies, fuel, materials, repairs, marketing. Ask of every cost: is this a different kind, or the same kind in a different size? Tape and boxes are both packing supplies.
Add one "everything else" drawer.
Every chart needs one. Keep it the smallest. If it ever grows, you have found a category you forgot to name.
Recode last month.
Go back through one month of your ledger and give every line one name from the list. Then total each drawer. This is where the surprises live.
Use the same list every month.
Do not invent new drawers on the fly. Consistency is what lets you compare this month to last month and this year to last year.
Dr. Paul's Insight
The classic mistake is building a chart that matches your accounting software's default list of eighty accounts. You will not use it, and you will end up dumping things in Other. Start with a dozen drawers that match how you think about your business. Your accountant can map them to the formal account types later. The goal is a list you can read without help.
Sample: A 12-Line Chart of Accounts
A starting chart for a small service business. Rename the lines to fit yours.
| Money in (revenue) | Money out (expenses) | |
|---|---|---|
| 1 | Deliveries | Wages |
| 2 | Packing and shipping | Packing supplies |
| 3 | Mail services | Fuel |
| 4 | Rentals | Rent and utilities |
| 5 | Vehicle and cart repairs | |
| 6 | Insurance | |
| 7 | Marketing | |
| 8 | Everything else (keep it smallest) |
Sample for illustration. Your accountant can map these to formal account types for tax filing.
Watch
Video: Build Your Chart of Accounts in an Hour
What Is a Chart of Accounts? A Sample for Small Business
Dr. Paul builds a 12-line chart and recodes a month of transactions on screen.
From the Book
Which Service Really Makes the Money?
Chapter 3 · Chart of Accounts
Everything Is Miscellaneous: An Octopus's Ledger
"You deliver, you pack and ship, you handle mail, and you rent carts and handcarts. Four kinds of work. Which one makes you the most coins?"
Otto brightened. "Rentals. Easy. Everybody rents something. Half the forest has one of my handcarts right now."
"How do you know?"
"Because I'm always fixing them."
Barnaby closed the ledger gently.
"That is not what I asked," he said.
What did Otto's rentals really make once every line had a name? Find out in Chapter 3. Book 2 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Chart of Accounts Questions
What is an example of a chart of accounts?
How many accounts should a small business have?
What are the main types of accounts?
Is it bad to use a miscellaneous account?
Keep Going
Related Foundations
A chart of accounts sits between writing it down and reading it. These five foundations use it. New to a term on this page? Every one is in the accounting and finance glossary.
Foundation 2 · Bookkeeping
Write every transaction down before you sort it into drawers.
Foundation 4 · Income Statement
Your categories become the lines on your income statement.
Foundation 6 · Bank Reconciliation
Reconcile each month so the totals in every drawer are right.
Foundation 7 · Cost of Goods Sold
Split product costs into their own drawer to see what each unit costs.
Foundation 10 · Recordkeeping and Business Deductions
Named categories make every deduction easy to find and prove.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and educator with an MBA focused in finance. Want help building a chart of accounts that fits your business? See fractional CFO services.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.