Knowing where your money is coming from and going to is essential for understanding financial health. A chart of accounts keeps your transactions organized. It’s a master list of all the accounts you use to label business transactions.
Think of it as a filing cabinet for your accounting system. The chart of accounts generally has a number assigned to each account, a description, its type, and which financial statement the account belongs to.
It’s important to keep your chart of accounts simple so you don’t have to sort through thousands of transactions.