What is a Chart of Accounts?

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Basic definition of Chart of Accounts

The word "Chart" may be a bit misleading and does not really help the learner much. A better term might be "Defined List of Accounts" or "Standardised List of Accounts".

So a Chart of Accounts is a list of accounts but not just any old list. The list of accounts represents what is considered to be the best for the type of business. There are many hundreds of accounts possible but only a few will be relevant to the business. For example, a football club is not likely to need an account for "Raw Materials" and a manufacturing firm is not likely to need an account for football program expenses.

A Chart of Accounts for each business, will consist of accounts for income, expenditure, assets, liabilities and ownership equity. These accounts are standardised and used on a regular basis and it is not a good idea to keep making additional accounts whenever it is difficult to categorise.

The number of accounts in the chart of accounts needs to be kept under control otherwise the process of simplification of information will not work.

Principles for Developing a Chart of Accounts

This is a complex subject matter to try to explain, unless you already have had some accountancy training.

Let's start with a simple statement:

warning: chart of accounts is extremely important

It is very important to have a Chart of Accounts which is appropriate to your organisation.

Because it is a difficult subject, here's a mind map of how this topic will be explained.

The diagram below is clickable for more information.

step by step graphic

It is quite difficult to explain what a chart of accounts is, and what the effect is if it is not correctly set up.

Perhaps the best way to explain is by example.

Principles you need to consider

First Principle . .

Accounting is an activity in which financial transactions are recorded and summarised to produce information which is used to manage the financial performance of a business

In a business, even a sport and recreation business, there are vast numbers of financial transactions on a week-to-week basis. It is not possible to manage a business by looking at each and every transaction. Instead the accounting process summarises and simplifies information for the business manager (or management committee). The final step in the accounting process is a set of readable, understandable, and useful financial reports.

If no-one can understand the financial reports, then they are not useful.

Principle No.1

Financial Statements should present information simply.

This is especially important when those who must read the financial statements do not have financial management training (as in a sporting club committee)

Second Principle . .

There is a delicate balance between having too much information in the financial reports and too little. Either way, the value of the financial reports is diminished to the manager or management committee.

The chart of accounts needs to be set up so as to provide the right amount of detail in the financial reports. Every business (sport and recreation organisation) will be different, and therefore there is no magic formula for a chart of accounts.

As a general rule though err on the side of using a simpler chart of accounts. Try to make it easy for the manager (management committee) to ready the financial reports.

Principle No.2

Be cautious about adding extra accounts
to the chart of accounts.

Sometimes it is necessary to add extra accounts
but more usually it's not!

Third Principle . .

In setting up, or redesigning a chart of accounts for a business, you need to think about what information you really need.

For example, if you are running a football club which generates income from football programs and the bar and gaming machines in the clubhouse, the management committee are most likely to need information that tells them:

  1. How much profit is being generated by the bar and gaming machine operations in the clubhouse, and thereby how much money can be spent on football!
  2. Whether the football side of the business is running at a profit or a loss

Principle No.3

Think about the key information you will need to know how ell the business is going..

Streamline your chart of accounts so that you get key information you need

Bad example of a Chart of Accounts

Let's look at a really bad example! This is a Chart of Accounts that went really wrong because the bookkeeper did not understand the principles.

Before you look at the example, you need to know what you are looking at! The document is a real life profit & Loss Statement produced for a club. Unfortunately the statement is five pages long and a complete mess as a result of not knowing how to set up and work with a Chart of Accounts.

Some of the things you might look for in this bad example are:


There are 35 listed expenditure categories for soccer. Some of the expenditures are listed in the Cost of Sales section and some listed in the Overheads section without any satisfactory reason

Ideally, the manager / management committee needs to be able to compare the revenue and costs of all (overall) soccer operations. Does the soccer operations run at a profit or a loss, and by how much?

Having a large number of expenditure categories split between two sections (Cost of Sales and Overheads sections) does not help in this regard.

The profit and loss statement needs to be simplified very considerably.


There is duplication (and over complication) of categories:

  • "4 A side" is listed three times in the cost of sales section. The operator of the accounting system has created three accounts for same thing.
  • "Players travel" and "players traveling" in the cost of sales section.
  • "Insurance" and "Public liability" ( a form of insurance) in the expenses section
  • "Tony's expenses" in the cost of sales section and "Tony's mobile" in the expenses section (why itemise mobile expenses separately from other expenses?)
  • "Trophies" and "Presentation Expenses" in the Cost of Sales section. A category such as "Trophies and Presentations" will suffice.
  • "Fuel and Diesel", "Rego for Car", and "Car Maintenance" in the expenses section. A category such as "Motor Vehicle" expenses will suffice.
  • "Cleaning" and "Cleaning Material" in the expenses section. Presumably, "Cleaning" is the wages component and "Cleaning Material" is the cost of materials. If the Management Committee need to find out how What value is there in differentiating between "club expense" and "club maintenance"? What is "club expense anyway?


Poor naming of accounts:

  • "Sports Supply" in the cost of sales section. Sports Supply is a company that sells sporting equipment, e.g. soccer balls. The account would be better labeled "Soccer Equipment".
  • "Simply Soccer" and "RM Distributors" are also companies and the same comment as for "Sports Supply" above would apply.


Needless detail:

Bar Purchases

Eleven (11) categories are provided. There is really no need to know the amount of purchases of "Chips/Nuts", "Gas for Beer", "Beer Freight", "Ice". The information the management committee needs most is the overall Gross Margin in percent terms. If bar sales and purchases are divided into alcoholic drinks, and "other", then it becomes possible to see the overall gross margin split into "alcoholic drinks" and "other". This is as much detail as is needed in a profit and loss statement. If more information is needed it may be queried from the financial database, or the source documents (e.g. invoices).


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HTML Version of Profit and Loss Statement

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Printer Friendly version of Profit and Loss Statement in PDF format

Better Example of Chart of Accounts

Now let's see how much better this same Profit and Loss Statement would have looked if a better Chart of Accounts had been followed

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HTML Version of Profit and Loss Statement

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Printer Friendly version of Profit and Loss Statement in PDF format

Basically, this version of the Profit and Loss statement is the same as the previous (bad) example but is much more concise in the number of accounts in the chart of accounts.

As a result, the report is easier to read and more useful as a management tool.

Chart of Accounts Template
for Football Club (Incorporated Association)

The suggested abbreviations may assist you in labeling columns in your journals.

General Ledger Account Comments
Ownership Equity    
Accumulated Members Funds    
Bank Account    
Motor Vehicles at Cost    
Office Equipment at Cost    
Stock (Clothing)    
Stock (Equipment)    
Accumulated Depreciation on Motor Vehicles    
Accumulated Depreciation on Office Equipment    
PAYG Tax Withholding    
Cost of Sales
Purchases of Clothing for Resale    
Purchases of Equipment for Resale    

Canteen Purchases

Bar Purchases    
Fundraising Costs    
Soccer Program Costs    
Audit Fees    
Bad Debts    
Computer Expenses    
Maintenance of Clubhouse    
Maintenance of Fields and Tractor    
Photocopier Lease Payment    
Printing & Stationery    
Purchases - Clothing    
Purchases - Equipment    
Travel & Accommodation    
Revenues (Income)
Fundraising Income    
Bar Sales    
Canteen Sales    
Soccer Program Revenue    
Membership Fees    
Government Grants    
Sales - Clothing   Use for any type of clothing sales
Sales - Equipment   Use for sales of footballs etc.
Other Income    

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