Do the Numbers in Your Chart of Accounts Really Matter? Here’s What You Need to Know

When setting up a Chart of Accounts (COA) for your small business, you might not choose to activate account numbers. After all, it’s the categories like income, expenses, and assets that seem most important, right?

Well, yes, but the numbers make life so much easier! The numbers in your COA play a crucial role in organizing financial activities, tracking performance, and even simplifying tax time. Especially when using QuickBooks Online or a similar tool, the numbers aren’t just for neatness—they make your financial data more manageable and insightful.

What Are the Numbers in a Chart of Accounts?

Each account in a COA may be assigned a unique identifying number between 3 and 7 digits long. At the highest level, account numbers begin with a digit or two to indicate the account type. 

• 10000s - Asset accounts 

• 10000s - 14000s - Current asset accounts

• 15000s - 19000s - Long-term asset accounts

• 20000s - Liability accounts

• 20000s - 24000s - Current liability accounts

• 25000s - 29000s - Long-term liability accounts

• 30000s - Equity accounts

• 40000s - Revenue accounts

• 50000s - Cost of sales accounts

• 60000s - Operational expense accounts

• 70000s - Other income accounts

• 80000s - Other expense accounts

Additional digits or prefixes can be added to indicate a specific entity, if there are multiple companies within an organization, or a specific department. After these assignments, similar accounts are grouped together within the COA and given neighboring numbers. It is up to each business to decide what kind of numbering system would be most useful to suit its structure and common activities. Making these decisions early and following them consistently will result in clarity in the trial balance as well as additional benefits described in the following section.

Why Do the Numbers in a Chart of Accounts Matter?

Here are some of the best benefits of implementing a meaningful numbering system:

1. They Mistake-Proof Categorization
   Account numbers help prevent errors when categorizing transactions. For example, it would be easy to accidentally categorize a small website expense under "Website" (an Asset account) instead of "Website Expense" (an Expense account) without proper account numbers. By activating account numbers, software users get a quick “sanity check” that the chosen account starts with a “6” and will be going to an expense account.

2. They Convey Information About Rarely-Used Accounts
   Account numbers can convey information about less-used accounts. For example, you may add the letters “QB” as a prefix to an account number for Opening Balance Equity, an account where QuickBooks Online sometimes plugs unbalanced journal entries. The prefix would signal to a user that this account is rarely to be selected and to a reviewer that a balance in this account may indicate underlying errors. Additionally, a “TAX” prefix may be used for accounts specifically created for journal entries calculated after year-end by a tax accountant.

3. They Indicate Report Placement
   Account numbers show where each account will appear on financial reports. For example, a labor expense account with a number starting with “5” will show up in the Cost of Sales, while one starting with “6” might show in Operational Expenses. Making these choices intentionally and at the time of categorization can be much simpler than trying to remember and parse-out all of the activity in a much-used account at year-end. 

4. They Make Adding New Accounts Easier
   Account numbers help you add new accounts with consistency. For example, if you need a new Office Furniture account in addition to your existing Office Equipment account, you can use the numbering system to reference similar accounts and ensure consistency in the structure. The new account can be set up more easily by referencing the Type, Detail Type, etc of accounts with neighboring numbers. 

Need a Numbered Chart of Accounts Template for Your Service Business?

If you’re ready to set up your own customized COA, check out this live pre-numbered template I’ve put together for consulting and other service businesses. You can easily import it directly into your QuickBooks Online account by following these steps: Transactions > Chart of Accounts > Click the arrow next to "New" > Import > Select Google Sheet. (HINT: You can also create an editable copy of this template to customize any accounts or numbers to your liking before linking it to your Quickbooks.) 

Click here to view or import the Chart of Accounts template.

TL;DR

Don’t underestimate the power of a well-organized COA, especially one with an intentional numbering system. It may seem like a small detail, but the numbers can play a huge role in keeping your business organized, making tax season a breeze, and helping you understand where your business stands financially.

Ready to get organized? Grab your pre-numbered COA template or reach out with any questions!

Book a COA Consultation