Sample chart of accounts for service businesses

A chart of accounts lists all of a business’s account names and numbers for accounting and bookkeeping. This lets you track revenues, expenses, and other financial data.

A sample chart of accounts is a standardised list of account names and numbers most companies use. It’s a template that helps you set up your charts of accounts faster and improve your business’s financial reporting accuracy.

Sample charts of accounts cover the following:

• Assets

• Liabilities

• Owner’s equity

• Revenue

• Expenses

These charts don’t cover individual accounts or transactions specific to businesses. Industry-specific sample charts of accounts, however, may cover accounts for particular industries or business models.

Once you set up your basic chart of accounts, you can add business-specific financial accounts if needed.

How does a sample chart of accounts for a service business work?

A standard chart of accounts for a service business consists of the following account types:

Assets

Assets are your business’s economic resources that you expect to earn future benefits from, such as revenue.

Current asset accounts are those you expect to convert to cash within a year, whereas non-current assets are expected to be converted to cash in a year or more.

Asset accounts a service business may have include the following:

• Petty cash

• Cash equivalents

• Accounts receivable

• Marketable securities

• Computers

• Office supplies

• Copyrights

• Prepaid insurance

Assets are included on the statement of financial position, also known as the balance sheet.

Liabilities

Liabilities are obligations your business owes others that you can expect to pay in the future. These are often debts.

Current liabilities are due within a year, whereas long-term liabilities are due in a year or longer.

Liability accounts a service business may have include the following:

• Accounts payable

• Loans payable

• Wages payable

• Taxes payable

Liabilities are balance sheet accounts.

Equity

Equity represents how much of your business’s assets you are entitled to after fulfilling the liabilities — in other words, assets minus liabilities.

For example, if you had $10,000 in assets and $6,000 in liabilities, you’d have $4,000 in equity.

Equity accounts a service business may have include the following:

• Retained earnings

• Preferred stock

• Common stock

• Additional paid-in capital

Owner’s equity is a type of balance sheet account.

Revenues

Revenue is business income received from core operating activities. For example, if you have a consulting firm, consulting fees are your revenue.

On the other hand, selling office furniture is NOT revenue because you aren’t a furniture business. That’s considered a gain.

Revenues for a service business include the following:

• Fees earned

• Sales revenue

Revenues show up on these businesses’ profit and loss statements, also called income statements.

Expenses

Expenses represent cash outflows your business pays for various matters.

Expenses for a service business include the following:

• Rent expenses

• Utility expenses

• Supplies expenses

• Advertising expenses

• Depreciation expenses

• Salaries and wages

• Miscellaneous expenses

• Payroll expenses

• Cost of goods sold

Expenses show up on the business’s income statement.

Gains

Gains are income from non-operating activities.

Selling furniture for more than you bought it when you aren’t a furniture company is a common example of a gain. Another example would be winning a lawsuit for copyright infringement if you aren’t a law firm. This is a gain since it’s not related to your operations.

Gains show up on the business’s income statement.

Losses

Losses represent a cash outflow or some other form of financial loss on some other non-operating activity.

An example would be if you’re a consulting firm, and a judge orders you to pay a fee as part of a settlement. Another example might be selling a security the company owns at a loss.

Losses show up on the business’s income statement.

How to code and categorise a chart of accounts

Double-entry bookkeeping splits everything into debits and credits. Some accounts increase with debits, and others do with credits:

• Debits: Assets, losses, and expenses

• Credits: Liabilities, equity, gains, and revenue

Each account gets a unique number for easy data entry and retrieval. Numbering conventions differ between businesses but generally follow a series running from 100–599 or 1000–5999.

Here’s how that might look:

• Asset accounts: 1000. For example, accounts receivable might be 1002

• Liability accounts: 2000. For example, accounts payable might be 2002

• Equity accounts: 3000. For example, retained earnings might be 3001

• Revenue accounts: 4000

• Expense accounts: 5000

Current liabilities and assets tend to have lower numbers in their respective ranges than long-term assets and liabilities.

Chart of accounts best practices for a service business 

Here are a few tips and best practices for managing your chart of accounts:

Review your chart of accounts regularly

Review your chart of accounts periodically to make sure it reflects your business’s operations. Try to do this at least annually — perhaps immediately after year-end tasks are completed.

As you do so, investigate general industry trends regarding laws and regulations.

After your review, make sure you have all the accounts you need to suit your existing needs. This may involve adding, altering, or removing accounts. Be cautious about the latter, as we explain later.

Use software to help with expense tracking 

Expense-tracking platforms and other relevant software can help you maintain accurate account balances more easily if they can be integrated into your accounting software.

The data interchange between your accounting software and expense-tracking or payroll platforms helps financial transaction data flow automatically.

Avoid complicated categorization

Too many categories or a numbering system that’s too complex can lead to the following problems:

• Improper categorization, leading to incorrect or unhelpful financial statements

• Unclear financial data if it’s too granular

• Inefficiency from categorising too granularly

• A high risk of error
  

Balance detail with efficiency and intuitiveness. You need enough categories to track your expenses accurately and make your data useful, but not so many that clutter and confusion result.

Don’t delete old or past accounts immediately

Occasionally, you may be able to delete accounts. But be careful. You may need past data for the following reasons:

• Reviewing historical financial transactions

• Forecasting future financial performance

• Conducting internal or external audits

• Meeting certain laws and regulations

During each annual review, look closely at all your business’s accounts to determine if you can safely delete any. If some are no longer needed but still contain vital financial records, keep them inactive instead of deleting them outright.