A chart of accounts for a business that sells products
Your chart of accounts is the list of buckets every transaction is sorted into. A product business needs a few accounts a service business doesn't, mainly inventory and cost of goods sold.
How accounts are numbered
Most small businesses group accounts by number range, so reports list them in a sensible order:
| Range | Type | Examples |
|---|---|---|
| 1000–1999 | Assets | Cash, receivables, inventory, equipment |
| 2000–2999 | Liabilities | Supplier bills, sales tax, loans, customer deposits |
| 3000–3999 | Equity | Owner's investment and draws, retained earnings |
| 4000–4999 | Income | Product sales, shipping charged to customers |
| 5000–5999 | Cost of goods sold | Product cost, inbound freight, duties, shrinkage |
| 6000–7999 | Operating expenses | Advertising, merchant fees, rent, software, wages |
A sample chart for a product business
| Number | Account | Notes |
|---|---|---|
| 1000 | Business checking | One account per real bank account |
| 1100 | Accounts receivable | What customers owe you |
| 1200 | Inventory | Cost of stock on hand |
| 1210 | Inventory in transit | Paid-for goods still on the way |
| 1300 | Supplier deposits | Deposits paid before goods ship |
| 2000 | Accounts payable | Unpaid supplier bills |
| 2100 | Sales tax payable | Tax collected, not yet paid over |
| 2200 | Customer deposits | Money received before you deliver |
| 3000 | Owner's equity | Investment and draws |
| 4000 | Product sales | |
| 4100 | Shipping income | Shipping you charge customers |
| 4900 | Returns and discounts | Reduces sales |
| 5000 | Cost of goods sold | Cost of items sold |
| 5100 | Freight in and duties | If you track them apart from product cost |
| 5200 | Inventory shrinkage | Count differences, damage, theft |
| 6100 | Merchant and marketplace fees | Card and platform fees |
| 6200 | Shipping to customers | Outbound postage and carriers |
| 6300 | Advertising |
Build one for your industry with the free chart of accounts builder, then ask your accountant to check how each account maps to your tax return.
Tips for a chart that stays useful
- Don't create an account per product. Track products as items in your inventory records and keep one inventory account.
- Keep it short. A few dozen accounts is plenty for most small businesses. Too many and transactions land in the wrong one.
- Separate what you'll want to see. If you care about freight costs, give inbound freight its own account.
- Don't rename accounts mid-year. Add a new one and stop using the old one, so past reports still make sense.
- Use "miscellaneous" sparingly. If it grows, it's hiding something you should track.
Why the inventory accounts matter
Stock you buy goes to Inventory (an asset). When it sells, its cost moves to Cost of goods sold. Without those two accounts your profit swings with every purchase. See inventory bookkeeping and how to calculate COGS.
Common questions
Can I change my chart of accounts later?
Yes. Adding accounts is easy. Renaming or merging accounts with history is better done at year-end, with your accountant.
Should sales tax be income?
No. Sales tax you collect belongs to the tax authority, so it sits in a liability account until you pay it over.
Keep your books this way without the busywork
YourAILedger tracks inventory, purchase orders and suppliers, reconciles imported bank statements and guides your month-end close. Plans start at $29 a month.
No credit card required.
This guide is general education, not tax, legal or accounting advice. Rules vary by business and location, so confirm your situation with a qualified professional.