Understanding the Chart of Accounts (Without Needing a CPA)
- Melton Liggett
- Jul 15
- 3 min read
This post is a little longer than some of my others — but that’s because we’re diving into one of the most important (and misunderstood) parts of your bookkeeping system: the Chart of Accounts. Stick with me — I’ll keep it simple, visual, and even a little fun.
What Is the Chart of Accounts, Anyway?
Think of the Chart of Accounts (COA) like a filing cabinet for your finances — or better yet, like a restaurant menu.
If everything on a menu were just labeled “Food,” you’d have no idea whether you’re ordering a $2 side salad or a $30 steak. Same goes for your books: if everything is just “Income” or “Expenses,” you (and your accountant) won’t know what’s actually happening in your business.
The COA is the master list that tells QuickBooks Online how to categorize your money:
Where it’s coming from
Where it’s going
And what type of financial activity it represents
Every transaction — whether it’s a client payment, a payroll run, or a church donation — is assigned to an account from this list.
The Five Core Account Types (Yes, Just Five)
All accounts in your Chart of Accounts fall into five basic types. These match up to your two main financial reports — the Balance Sheet and the Profit & Loss (P&L) statement.
If you can learn just those five, you already understand more than 90% of what’s happening in your books.
How Transactions Use the Chart of Accounts
As your bookkeeper, I’m handling the setup, maintenance, and clean-up of your Chart of Accounts. But even if you’re not in QuickBooks every day, here’s why having a basic understanding helps:
✅ You’ll Understand Your Financial Reports
Ever wonder why “office expenses” are so high, or where that client payment went? The COA is the backbone of your reports — if something looks off, that’s where we check first.
✅ You’ll Know What to Look For (and Avoid)
Some clients enter their own deposits, bills, or payroll. If you use the wrong account — say, categorizing a loan deposit as “Income” — it can throw off your taxes and financials. (And yes, I catch and fix those.)
COA Nuances by Organization Type
Let’s zoom in for a moment. Depending on the kind of work you do, your Chart of Accounts may include custom categories:
🧾 Small Businesses
Cost of Goods Sold (COGS) to track product-related expenses
Separate income lines for services, consulting, or online sales
Asset accounts for tools, vehicles, and equipment
⛪ Churches
Income accounts like Tithes & Offerings, Restricted Giving
Fund-tracking via classes or sub-accounts
Expenses for ministries, events, staff, or building maintenance
🌱 Nonprofits
Income lines for Grants, Program Revenue, and Donations
Expenses broken out by program vs. admin (for reporting purposes)
Fund tracking for restricted vs. unrestricted use
These aren’t just “nice-to-haves” — they help with compliance, grant reporting, and making good decisions.
A Quick Visual: How the Chart of Accounts Feeds Your Reports
[ Transactions ]
↓
[ Categorized via Chart of Accounts ]
↓
[ Financial Statements ]
→ Profit & Loss
→ Balance Sheet
If your COA is messy, your reports will be too. If it’s clean and accurate? You’ll know exactly what’s going on in your business or organization — and so will your accountant.
Bottom Line
Your Chart of Accounts is like the blueprint behind every report in QuickBooks Online. You don’t need to memorize it — that’s my job. But understanding what it is and why it matters helps you make better decisions, ask smarter questions, and avoid messy mistakes.
If you’re not sure your Chart of Accounts fits your business or nonprofit — or you’ve inherited a QBO setup that feels like alphabet soup — let’s fix it.
Need Help With Your Chart of Accounts?
Whether you're a small business, a church, or a nonprofit, your books should be telling you a story — not confusing you.📩 Contact me here to schedule a chat and clean up your Chart of Accounts.
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