What Is a Chart of Accounts? A Service Company's Chart Built Line by Line, Mapped to Schedule C
A chart of accounts is the numbered list of every account a business records transactions in: assets, liabilities, equity, revenue and expenses. As of October 2026, the test of a good one is that every expense account lands on exactly one line of the IRS's Schedule C. Lumped vehicle and insurance accounts fail it.
What is a chart of accounts? The short answer
A chart of accounts is the numbered list of every account a business records transactions in: assets, liabilities, equity, revenue and expenses, usually numbered 1000s through 6000s. It is the set of buckets your general ledger is allowed to use. A good one is short enough to code a receipt in seconds and split finely enough that every expense account lands on exactly one line of your tax return.
As of October 2026, accounting apps hand you a starter chart on day one, and many small businesses never change it. A starter chart is built for financial statements, not for your return. This guide builds a full chart of accounts for a small service company line by line, maps each expense account to its line on the IRS's 2025 Schedule C, and shows the seven accounts a starter chart most often gets wrong.
The five account types and how they are numbered
| Number range | Type | What lives there | Which report it feeds |
|---|---|---|---|
| 1000s | Assets | Cash, money customers owe you, vans, equipment | Balance sheet |
| 2000s | Liabilities | Bills you owe, credit cards, loans, sales tax and payroll tax collected but not yet paid | Balance sheet |
| 3000s | Equity | Money the owner put in or took out, and profit kept from prior years | Balance sheet |
| 4000s | Revenue | What you billed or sold | Income statement |
| 5000s and up | Cost of goods sold and expenses | Job materials, labor, then overhead | Income statement |
The numbering is a convention, not a law; no agency requires it. It matters because it keeps related accounts next to each other and leaves gaps for accounts you add later (6100, then 6110 and 6120 when you need to split it). Accounts in the first three ranges carry their balances forward forever. Accounts in the last two reset to zero each year, and the difference between them, the year's profit, is what your income statement reports. At the year-end close that profit moves into an equity account: in a corporation, retained earnings.
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Chart of accounts vs general ledger
The chart of accounts is the structure; the general ledger is the data. The chart says "6300 Business insurance" exists. The ledger holds every insurance payment posted to it, with a running balance. Change the chart and every report built on the ledger changes with it, which is why it is worth getting right before the first year closes, not after.
A service company's chart of accounts, built line by line
Here is a complete chart for a hypothetical plumbing company: one owner filing Schedule C as a sole proprietor, three owned vans, two employed technicians, an office manager and an occasional subcontractor. The last column is where each account ends up on the return, taken from the 2025 Schedule C form and its instructions (read October 5, 2026).
| No. | Account | Type | Where it lands on Schedule C |
|---|---|---|---|
| 1000 | Operating checking | Asset | Not on Schedule C (balance sheet only) |
| 1010 | Tax reserve savings | Asset | Not on Schedule C |
| 1100 | Accounts receivable | Asset | Not on Schedule C |
| 1500 | Vans and equipment | Asset | Recovered through depreciation, line 13 via Form 4562 |
| 1510 | Accumulated depreciation | Contra-asset | Not on Schedule C |
| 2000 | Accounts payable | Liability | Not on Schedule C |
| 2100 | Business credit card | Liability | Not on Schedule C |
| 2200 | Sales tax payable | Liability | Not on Schedule C (see below) |
| 2300 | Payroll taxes payable | Liability | Not on Schedule C |
| 2500 | Van loan | Liability | Principal is not deductible; interest goes to 6610 |
| 3000 | Owner's contributions | Equity | Not on Schedule C |
| 3100 | Owner's draws | Equity | Not deductible |
| 3110 | Owner's health insurance | Equity | Schedule 1 (Form 1040), line 17, not Schedule C |
| 3120 | Owner's income tax payments | Equity | Not deductible on Schedule C |
| 3900 | Prior-year equity | Equity | Not on Schedule C |
| 4000 | Service revenue | Revenue | Line 1, gross receipts |
| 4900 | Refunds and discounts | Contra-revenue | Line 2, returns and allowances |
| 5000 | Job materials and parts | Cost of goods sold | Line 22, or Part III line 38 if you report cost of goods sold (pick one, keep it every year) |
| 5100 | Subcontractors | Cost of goods sold | Line 11, contract labor |
| 5200 | Technician wages | Cost of goods sold | Line 26, wages |
| 6000 | Advertising | Expense | Line 8 |
| 6100 | Van fuel and repairs | Expense | Line 9 (actual expense method only) |
| 6110 | Van insurance | Expense | Line 9 (actual expense method only) |
| 6120 | Parking and tolls | Expense | Line 9 (either method) |
| 6200 | Bank and card processing fees | Expense | Part V other expenses, totaled on line 27b |
| 6300 | Business insurance (liability, bonding) | Expense | Line 15 |
| 6310 | Employee health insurance | Expense | Line 14, employee benefit programs |
| 6400 | Accounting and legal | Expense | Line 17 |
| 6500 | Office supplies and postage | Expense | Line 18 |
| 6600 | Equipment rental | Expense | Line 20a |
| 6610 | Interest on van loan | Expense | Line 16b, other interest |
| 6650 | Shop rent | Expense | Line 20b |
| 6700 | Tool and shop repairs | Expense | Line 21 |
| 6710 | Small tools and shop supplies | Expense | Line 22 |
| 6800 | Licenses and business taxes | Expense | Line 23 |
| 6810 | Employer payroll taxes | Expense | Line 23 |
| 6900 | Overnight travel | Expense | Line 24a |
| 6910 | Business meals | Expense | Line 24b, generally at 50% |
| 6920 | Utilities and phones | Expense | Line 25 |
| 6950 | Office wages | Expense | Line 26 |
| 6960 | Software subscriptions | Expense | Part V, line 27b |
| 6990 | Depreciation expense | Expense | Line 13 (tax figure comes from Form 4562) |
That is 42 accounts. It looks like a lot until you notice that each one answers a single question at tax time, and none of them needs to be split apart in December.
Seven accounts a starter chart gets wrong
Starter charts often lump these into one "Vehicle," one "Insurance," one "Rent" and one "Payroll" account. Each of those is a single bucket on your books and two to four different places on the return. These are the splits, from the IRS's own line instructions:
- Vehicle. Under the actual expense method, line 9 takes "gasoline, oil, repairs, insurance, license plates," while depreciation goes on line 13 and "rent or lease payments on line 20a." Under the standard mileage rate, 70 cents per mile for 2025, you deduct business miles times $0.70 plus parking and tolls, and the instructions say "do not deduct depreciation, rent or lease payments, or your actual operating expenses." Fuel, repairs, insurance, tolls and the vans themselves need their own accounts, and someone needs to log business miles, which are not an account at all.
- Insurance. Business insurance goes on line 15. Employee health insurance goes on line 14. Van insurance goes on line 9 under the actual method. The owner's own health insurance does not go on Schedule C at all: the instructions send it to Schedule 1, line 17. One account, four destinations.
- Rent. Line 20a is for "vehicles, machinery, or equipment"; line 20b is "other business property, such as office space in a building." The excavator you rent for a day and the shop lease are different lines.
- Interest. Line 16a is mortgage interest paid to banks; line 16b is all other business interest, like the van loan. The loan principal is not an expense at all.
- Meals. Line 24b: "In most cases, the percentage is 50%." A separate meals account lets your preparer take half of one number instead of hunting through "Office expense" for restaurant charges.
- The owner's pay. Line 26 wages exclude "amounts paid to yourself." On a sole proprietor's books, the owner's transfers are draws in equity, never wages. Code them as wages and both the income statement and the return overstate expenses.
- Sales tax and the owner's taxes. Sales tax you collect from customers and remit is "not included in gross receipts or sales nor ... a deductible expense," so it belongs in a liability account, not revenue. And federal income tax, including self-employment tax, is not deductible on Schedule C, so the owner's estimated tax payments go to equity, not to "Taxes and licenses."
What one year of van costs looks like, split vs lumped
Say the plumbing company had kept a single "Vehicle" account, and it ends the year at $21,000. The owner hands it to the preparer as one number. Here is what is inside it:
| Item | Amount | Actual expense method | Standard mileage method |
|---|---|---|---|
| Fuel | $10,200 | Line 9 | Not deductible separately |
| Repairs and tires | $3,600 | Line 9 | Not deductible separately |
| Van insurance | $4,200 | Line 9 | Not deductible separately |
| Trailer rental | $2,400 | Line 20a | Line 20a (it is equipment, not the van) |
| Parking and tolls | $600 | Line 9 | Line 9, added to the mileage figure |
Under the actual method, line 9 is $18,600 and line 20a is $2,400, plus whatever depreciation Form 4562 produces on line 13. Under the standard mileage method, 60,000 business miles across three vans is $42,000 on line 9 plus the $600 of parking and tolls. Which method is allowed and which is larger depends on how each van was handled in its first year, so the preparer has to work both. That takes ten minutes from a split chart and a mileage log. From one $21,000 number, it means going back through a year of card statements, billed by the hour. The figures are illustrative, but the line rules are the IRS's.
How many accounts should a small business have?
Enough that every expense account maps to one tax line and every revenue line you want to watch has its own account; no more. For a Schedule C business, the expense side is bounded by the form itself: lines 8 through 27b, plus Part III if you report cost of goods sold. Thirty to fifty accounts covers most service companies. Over a hundred usually means the chart is being used to track jobs, customers or locations, which accounting software does better with classes, projects or tags. An S corporation or partnership maps to different forms, so ask your preparer for their line list before you build the chart.
Setting one up, or fixing the one you have
If you are starting fresh, take the software's default and edit it against the table above before you post the first transaction. Both Wave and QuickBooks Online let you rename, renumber and add accounts. If the books already have a year in them, do not delete accounts mid-year. Add the new, split accounts, move this year's entries with journal entries, then mark the old account inactive so nothing new posts to it. Do it at a month end, and tell your accountant first.
Keep the coding right without the typing
A good chart only helps if transactions land in the right account, and that is where most books drift: a trailer rental coded to fuel, a lunch coded to supplies. Bank-feed rules handle the repeat vendors; our look at AI bookkeeping covers how far the newer tools get on the rest. SuperDupr's AI workflow automation reads each bill and receipt as it arrives, codes it to your chart, attaches the document and flags anything it is not sure of, so the split accounts stay split all year.
The bottom line
A chart of accounts is the list of buckets your ledger uses. Build it for two readers: you, reading the income statement each month, and your preparer, filling in Schedule C once a year. If every expense account lands on exactly one tax line, the second job is a sum. If "Vehicle" and "Insurance" are single accounts, it is an archaeology project.
Sources (read October 5, 2026): IRS, Schedule C (Form 1040) 2025, Parts I, II, III and V (irs.gov/pub/irs-pdf/f1040sc.pdf); IRS, Instructions for Schedule C (Form 1040) (2025), lines 9, 11, 14, 15, 20a and 20b, 23, 24b, 26 and Part V (irs.gov). The plumbing company and its figures are a hypothetical with illustrative amounts.
Frequently Asked Questions
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It is the list of categories a business sorts every transaction into, such as checking, accounts receivable, loans, owner's equity, service revenue, rent and fuel, each with a number. The general ledger records transactions in those accounts, and the balance sheet and income statement are built from them.
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Assets (usually numbered in the 1000s), liabilities (2000s), equity (3000s), revenue (4000s), and cost of goods sold and expenses (5000s and up). The first three make up the balance sheet and carry their balances forward; revenue and expenses make up the income statement and reset each year.
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Enough that every expense account maps to one line on your tax return, and no more. For a Schedule C business that usually means 30 to 50 accounts. Charts with over a hundred are usually tracking jobs, customers or locations, which software handles better with classes, projects or tags.
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The chart of accounts is the list of accounts; the general ledger is those accounts filled in with every transaction and a running balance. The chart is the structure and the ledger is the data.
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Not for a sole proprietor or single-member LLC. The Schedule C instructions exclude amounts paid to yourself from wages, so the owner's transfers belong in an equity account such as owner's draws. The owner's own health insurance also goes in equity, because the IRS sends it to Schedule 1, line 17, not Schedule C.
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Yes, but add rather than delete. Create the new, more detailed accounts, move this year's entries into them with journal entries, then mark the old account inactive so nothing new posts to it. Make the change at a month end and tell your accountant first.