Chart of Accounts (COA) – Definition, Purpose, Features, Types, Creation Steps & Industry-Wise COA Examples

Definition of Chart of Accounts (COA) 

A Chart of Accounts is simply a list of all the accounts a business uses to track cash in, cash out, what it owns (assets), what it owes (liabilities), its ownership value (equity), and its earnings and spending's. It helps organize accounting information so that financial statements, such as the Balance Sheet, Profit & Loss Account, and Cash Flow Statement, can be put together correctly.

Purpose of Chart of Accounts

• It Organizes financial information systematically
• It Helps in accurate bookkeeping
• It Facilitates financial reporting
• It Supports tax compliance (e.g., GST, TDS in India)
• It Helps management decision-making

Main Categories in a Chart of Accounts

1. Assets - Resources owned by the business. Examples: Cash, Bank Balance, Inventory, Machinery.
2. Liabilities - Amounts owed to others. Examples: Loans, Creditors, Taxes Payable.
3. Equity / Capital - Owner’s investment and retained profits. Examples: Capital Account, Reserves, Drawings.
4. Income / Revenue - Money earned from business activities. Examples: Sales, Service Income, Interest Income.
5. Expenses - Costs incurred to run the business. Examples: Salaries, Rent, Electricity, Purchases.

Key Features of a Good Chart of Accounts

1. Logical numbering system
2. Industry-specific accounts
3. Compliance with accounting standards
4. Flexibility for future expansion
5. Clear account descriptions

Example (Simple COA Structure)

Category	Example Accounts
Assets	Cash, Bank, Inventory
Liabilities	Loans, Creditors
Equity	Capital, Retained Earnings
Income	Sales, Service Revenue
Expenses	Salary, Rent, Utilities

Types of Charts of Accounts (COA)

Chart of Accounts can be classified based on business nature and accounting needs.

1. General Chart of Accounts - Standard accounts used by most businesses. Which includes assets, liabilities, equity, income, and expenses. General chart of accounts Suitable for small businesses and basic accounting. Example: Cash, Bank, Sales, Purchase, Salary, Rent.
2. Industry-Specific COA - It Designed according to business industry. 
• Examples:
• Manufacturing: Raw material, WIP, factory overhead.
• Trading: Inventory, purchases, sales discount.
• Service: Consultancy income, professional fees.
3. Corporate / Enterprise COA – It is Used by large companies and organizations. It provides detailed accounts with departmental segmentation. It also helps in advanced financial reporting and analysis.
4. Tax-Oriented COA – It is provided structured for tax compliance. Which includes GST, TDS, VAT accounts. Common in India and regulated industries.
5. Management COA – It is created for internal reporting. It also helps in decision-making and cost control. It often includes cost centers and budgets.

How to Create a Chart of Accounts (Step-by-Step)

1. Step 1: Identify Business Type – Whether business is Manufacturing, trading, service, or mixed. Industry determines account structure.
2. Step 2: Define Major Categories – It has Standard categories: 
• Assets
• Liabilities
• Equity
• Income
• Expenses
3. Step 3: Create Account Codes - Example numbering system:
• 1000–1999 → Assets
• 2000–2999 → Liabilities
• 3000–3999 → Equity
• 4000–4999 → Income
• 5000–5999 → Expenses
• This helps easy identification.
4. Step 4: Add Sub-Accounts Example: Expenses → Administrative Expenses, Salary, Rent, Electricity and Internet
5. Step 5: Ensure Compliance – which include statutory accounts: GST Input / Output, TDS Payable / Receivable and PF/ESI (if applicable)
6. Step 6: Review and Customize - 
• Remove unnecessary accounts. 
• Add industry-specific accounts.
• Keep structure flexible.
7. Step 7: Implement in Accounting Software - Examples: Tally, Busy, Zoho Books and Other ERP systems

Difference Between Chart of Accounts and Ledger 

Basis	Chart of Accounts	Ledger
Meaning	COA is a list of all accounts	Ledger is recording of transactions in each account
Purpose	It Organizes accounts	It Tracks financial activity
Content	Account names & codes	Debit/credit entries
Use	Structure setup	Daily accounting
Example	Cash A/c, Sales A/c list	Cash ledger showing receipts/payments

Simple Explanation:

• Chart of Accounts = Account List
• Ledger = Transaction Details

Example:

• COA shows "Cash Account"
• Ledger shows how much cash received or paid.

Manufacturing Industry Chart of Accounts (COA)

Assets

Code	Account Name	Type	Description
1000	Cash in Hand	Current Asset	Physical cash
1001	Bank Current Account	Current Asset	Business bank balance
1010	Accounts Receivable	Current Asset	Customer dues
1020	Raw Material Inventory	Current Asset	Production materials
1021	Work in Progress (WIP)	Current Asset	Semi-finished goods
1022	Finished Goods Inventory	Current Asset	Ready products
1030	Prepaid Expenses	Current Asset	Advance payments
1100	Plant & Machinery	Fixed Asset	Production equipment
1101	Factory Building	Fixed Asset	Manufacturing facility
1102	Tools & Dies	Fixed Asset	Production tools
1103	Furniture & Fixtures	Fixed Asset	Office furniture
1110	Accumulated Depreciation	Contra Asset	Total depreciation

Liabilities

Code	Account Name	Type	Description
2000	Trade Creditors	Current Liability	Supplier dues
2001	Wages Payable	Current Liability	Worker wages
2002	GST Payable	Current Liability	Tax liability
2010	Short-term Loan	Current Liability	Loan within 1 year
2100	Term Loan	Long Liability	Long-term borrowing

Equity

Code	Account Name	Type	Description
3000	Owner Capital	Equity	Owner investment
3001	Retained Earnings	Equity	Accumulated profit
3002	Drawings	Contra Equity	Owner withdrawal

Income

Code	Account Name	Type	Description
4000	Product Sales	Income	Manufactured goods sales
4001	Scrap Sales	Income	Waste material sale
4002	Job Work Income	Income	Contract manufacturing

Expenses

Code	Account Name	Type	Description
5000	Raw Material Consumed	Direct Expense	Material usage
5001	Direct Labour	Direct Expense	Factory wages
5002	Factory Overheads	Direct Expense	Indirect production cost
5100	Power & Fuel	Expense	Electricity, fuel
5101	Machinery Repair	Expense	Maintenance
5102	Depreciation Plant	Expense	Asset depreciation
5200	Admin Salaries	Expense	Staff salary
5201	Insurance	Expense	Factory insurance
5202	Quality Control Expense	Expense	Inspection/testing

Trading Industry Chart of Account (COA)

Assets

Code	Account Name	Type	Description
1000	Cash in Hand	Current Asset	Cash balance
1001	Bank Account	Current Asset	Bank funds
1010	Accounts Receivable	Current Asset	Customer dues
1020	Inventory – Trading Goods	Current Asset	Resale goods
1030	Advance to Suppliers	Current Asset	Vendor advance
1100	Shop Furniture	Fixed Asset	Store fittings
1101	Computers	Fixed Asset	IT equipment

Liabilities

Code	Account Name	Type	Description
2000	Trade Payables	Current Liability	Supplier dues
2001	GST Payable	Current Liability	Tax payable
2100	Business Loan	Long Liability	Long-term borrowing

Equity

Code	Account Name	Type	Description
3000	Capital Account	Equity	Owner investment
3001	Retained Earnings	Equity	Profit reserve

Income

Code	Account Name	Type	Description
4000	Sales Revenue	Income	Goods sales
4001	Discount Received	Income	Supplier discount
4002	Commission Income	Income	Trading commission

Expenses

Code	Account Name	Type	Description
5000	Purchases	Expense	Goods purchase
5001	Freight Inward	Expense	Transport cost
5100	Shop Rent	Expense	Rent
5101	Staff Salaries	Expense	Employee wages
5102	Advertising	Expense	Marketing
5103	Bad Debts	Expense	Credit losses
5200	Electricity Expense	Expense	Utilities
5201	Packing Expense	Expense	Packaging

Service Industry Chart of Accounts (COA)

Assets

Code	Account Name	Type	Description
1000	Cash & Bank	Current Asset	Funds
1010	Accounts Receivable	Current Asset	Client dues
1020	Prepaid Expenses	Current Asset	Advance payments
1100	Office Equipment	Fixed Asset	IT & office assets

Liabilities

Code	Account Name	Type	Description
2000	Outstanding Expenses	Current Liability	Unpaid bills
2001	GST Payable	Current Liability	Tax liability
2100	Loan Payable	Long Liability	Long-term loan

Equity

Code	Account Name	Type	Description
3000	Capital Account	Equity	Investment
3001	Current Profit/Loss	Equity	Net income

Income

Code	Account Name	Type	Description
4000	Professional Fees	Income	Service revenue
4001	Consultancy Income	Income	Advisory services
4002	AMC/Service Contract Income	Income	Annual contracts

Expenses

Code	Account Name	Type	Description
5000	Salaries & Wages	Expense	Employee cost
5001	Professional Fees Paid	Expense	Consultant charges
5100	Office Rent	Expense	Workspace rent
5101	Internet & Utilities	Expense	Communication
5102	Software Subscription	Expense	Tools/software
5103	Travel Expense	Expense	Client visits
5200	Marketing Expense	Expense	Promotion
5201	Training Expense	Expense	Skill development

Important Points: 

Manufacturing:

1. Focus on costing accuracy (Material + Labour + Overhead).
2. Maintain WIP carefully.

Trading:

1. Inventory turnover and margin tracking critical.
2. Purchase discount tracking improves profitability.

Service:

1. Human resource cost major factor.
2. Track billable vs non-billable hours.

Professional Chart of Accounts 

 ASSETS

Current Assets

Code	Account Name	Type	Description
1000	Cash in Hand	Current Asset	Physical cash
1001	Cash at Bank – Current	Current Asset	Bank balance
1002	Cash at Bank – Savings	Current Asset	Savings account
1003	Petty Cash	Current Asset	Minor expenses fund
1010	Accounts Receivable	Current Asset	Customer dues
1011	Allowance for Doubtful Debts	Contra Asset	Bad debt provision
1020	Inventory – Raw Materials	Current Asset	Production material
1021	Inventory – WIP	Current Asset	Semi-finished goods
1022	Inventory – Finished Goods	Current Asset	Ready goods
1023	Inventory – Trading Goods	Current Asset	Resale stock
1030	Prepaid Rent	Current Asset	Advance rent
1031	Prepaid Insurance	Current Asset	Advance insurance
1032	Advance to Suppliers	Current Asset	Vendor advances
1033	Employee Advances	Current Asset	Staff advances
1040	Input GST – CGST	Current Asset	GST credit
1041	Input GST – SGST	Current Asset	GST credit
1042	Input GST – IGST	Current Asset	GST credit
1043	TDS Receivable	Current Asset	Tax refund due
1044	Security Deposits Given	Current Asset	Deposits paid
1045	Short-term Investments	Current Asset	Temporary investments

Fixed Assets

Code	Account Name	Type	Description
1100	Land	Fixed Asset	Land owned
1101	Building	Fixed Asset	Office/factory building
1102	Plant & Machinery	Fixed Asset	Manufacturing machines
1103	Furniture & Fixtures	Fixed Asset	Office furniture
1104	Office Equipment	Fixed Asset	Equipment
1105	Computers & IT Equipment	Fixed Asset	IT assets
1106	Vehicles	Fixed Asset	Business vehicles
1107	Tools & Dies	Fixed Asset	Manufacturing tools
1108	Leasehold Improvements	Fixed Asset	Improvements
1110	Accumulated Depreciation	Contra Asset	Total depreciation

LIABILITIES

Current Liabilities

Code	Account Name	Type	Description
2000	Accounts Payable	Current Liability	Supplier dues
2001	Bills Payable	Current Liability	Payable bills
2002	Salaries Payable	Current Liability	Employee dues
2003	Wages Payable	Current Liability	Worker wages
2004	GST Payable CGST	Current Liability	Output GST
2005	GST Payable SGST	Current Liability	Output GST
2006	GST Payable IGST	Current Liability	Output GST
2007	TDS Payable	Current Liability	Tax deducted
2008	PF/ESI Payable	Current Liability	Statutory dues
2009	Outstanding Expenses	Current Liability	Unpaid expenses
2010	Unearned Revenue	Current Liability	Customer advance
2011	Short-term Loan	Current Liability	Loan < 1 year
2012	Credit Card Payable	Current Liability	Card dues

Long-Term Liabilities

Code	Account Name	Type	Description
2100	Term Loan – Bank	Long Liability	Bank loan
2101	Vehicle Loan	Long Liability	Vehicle finance
2102	Lease Liability	Long Liability	Lease obligation
2103	Security Deposit Received	Long Liability	Customer deposits
2104	Deferred Tax Liability	Long Liability	Tax provision

EQUITY

Code	Account Name	Type	Description
3000	Owner Capital	Equity	Owner investment
3001	Partner Capital	Equity	Partner investment
3002	Share Capital	Equity	Company capital
3003	Retained Earnings	Equity	Accumulated profit
3004	General Reserve	Equity	Business reserve
3005	Drawings	Contra Equity	Withdrawals
3006	Current Year Profit/Loss	Equity	Net income

INCOME

Operating Revenue

Code	Account Name	Type	Description
4000	Sales – Manufactured Goods	Income	Product sales
4001	Trading Sales	Income	Resale goods
4002	Service Revenue	Income	Services
4003	Export Sales	Income	Export income
4004	Scrap Sales	Income	Waste sales
4005	Job Work Income	Income	Contract work
4006	Commission Income	Income	Commission
4007	Consultancy Income	Income	Advisory income

Other Income

Code	Account Name	Type	Description
4100	Interest Income	Income	Bank interest
4101	Discount Received	Income	Purchase discount
4102	Rental Income	Income	Rent received
4103	Gain on Asset Sale	Income	Asset profit
4104	Miscellaneous Income	Income	Other income

COST OF GOODS SOLD / DIRECT EXPENSES

Code	Account Name	Type	Description
5000	Raw Material Consumed	Direct Expense	Material cost
5001	Direct Labour	Direct Expense	Worker wages
5002	Factory Overheads	Direct Expense	Indirect cost
5003	Freight Inward	Direct Expense	Purchase transport
5004	Packaging Expense	Direct Expense	Packing
5005	Power & Fuel	Direct Expense	Electricity/fuel
5006	Quality Control	Direct Expense	Testing cost

OPERATING EXPENSES

Administrative Expenses

Code	Account Name	Type	Description
5100	Salaries & Wages	Expense	Payroll
5101	Employee Benefits	Expense	PF/Insurance
5102	Office Rent	Expense	Rent
5103	Utilities	Expense	Electricity
5104	Telephone & Internet	Expense	Communication
5105	Printing & Stationery	Expense	Stationery
5106	Repairs & Maintenance	Expense	Maintenance
5107	Insurance Expense	Expense	Insurance
5108	Bank Charges	Expense	Banking fees
5109	Legal & Professional Fees	Expense	CA/Lawyer
5110	Audit Fees	Expense	Audit cost
5111	Software Subscription	Expense	Software tools
5112	Depreciation	Expense	Asset depreciation
5113	Bad Debts	Expense	Credit losses
5114	Miscellaneous Expense	Expense	Other expenses

Selling & Distribution Expenses

Code	Account Name	Type	Description
5200	Advertising	Expense	Marketing
5201	Sales Commission	Expense	Commission
5202	Travel Expense	Expense	Travel
5203	Delivery Expense	Expense	Transport
5204	Customer Discount Allowed	Expense	Discount
5205	Promotion Expense	Expense	Branding

Finance Costs

Code	Account Name	Type	Description
5300	Interest Expense	Expense	Loan interest
5301	Loan Processing Fees	Expense	Bank charges
5302	Foreign Exchange Loss	Expense	Currency loss
5303	Late Payment Charges	Expense	Penalty

Industry-specific COA (construction / pharma / IT / retail)

Construction Industry Chart of Accounts (COA)

Assets

Code	Account Name	Type	Description
1000	Cash & Bank	Current Asset	Cash balance
1010	Accounts Receivable	Current Asset	Client dues
1020	Work in Progress (WIP)	Current Asset	Ongoing projects
1021	Materials Inventory	Current Asset	Construction materials
1030	Mobilization Advance	Current Asset	Advance to subcontractors
1100	Construction Equipment	Fixed Asset	Machinery/tools
1101	Site Vehicles	Fixed Asset	Transport vehicles

Liabilities

Code	Account Name	Type	Description
2000	Trade Payables	Current Liability	Supplier dues
2001	Subcontractor Payable	Current Liability	Contractor dues
2002	GST Payable	Current Liability	Tax liability
2100	Equipment Loan	Long Liability	Machinery loan

Income

Code	Account Name	Type	Description
4000	Contract Revenue	Income	Construction income
4001	Project Consultancy	Income	Advisory services

Expenses

Code	Account Name	Type	Description
5000	Material Consumption	Direct Expense	Building materials
5001	Labour Charges	Direct Expense	Worker wages
5002	Subcontract Expense	Direct Expense	Contract payments
5100	Site Expenses	Expense	Site overheads
5101	Equipment Maintenance	Expense	Repairs

Pharmaceutical Industry Chart of Accounts (COA)

Assets

Code	Account Name	Type	Description
1000	Cash & Bank	Current Asset	Funds
1010	Accounts Receivable	Current Asset	Distributor dues
1020	Raw Material Inventory	Current Asset	Chemicals/API
1021	Finished Drugs Inventory	Current Asset	Medicines
1100	Lab Equipment	Fixed Asset	Testing equipment
1101	Manufacturing Plant	Fixed Asset	Production unit

Liabilities

Code	Account Name	Type	Description
2000	Supplier Payables	Current Liability	Vendor dues
2001	GST Payable	Current Liability	Tax payable

Income

Code	Account Name	Type	Description
4000	Medicine Sales	Income	Product sales
4001	Export Sales Pharma	Income	Export income

Expenses

Code	Account Name	Type	Description
5000	Raw Material Cost	Direct Expense	Chemical cost
5001	Production Labour	Direct Expense	Manufacturing wages
5002	Quality Testing Expense	Direct Expense	Lab testing
5100	R&D Expense	Expense	Research
5101	Regulatory Compliance	Expense	Certification cost
5102	Marketing to Doctors	Expense	Promotion

IT / Software Industry Chart of Accounts (COA)

Assets

Code	Account Name	Type	Description
1000	Cash & Bank	Current Asset	Funds
1010	Accounts Receivable	Current Asset	Client dues
1020	Software Licenses	Intangible Asset	Purchased licenses
1100	Computers & Servers	Fixed Asset	IT hardware

Liabilities

Code	Account Name	Type	Description
2000	Vendor Payables	Current Liability	Supplier dues
2001	GST Payable	Current Liability	Tax liability

Income

Code	Account Name	Type	Description
4000	Software Development Income	Income	Project revenue
4001	AMC / Subscription Income	Income	Recurring income
4002	Consultancy Income	Income	Advisory services

Expenses

Code	Account Name	Type	Description
5000	Developer Salaries	Expense	Payroll
5001	Software Subscriptions	Expense	SaaS tools
5002	Cloud Hosting Expense	Expense	Server cost
5100	Internet Expense	Expense	Connectivity
5101	Training Expense	Expense	Skill development

Retail Industry Chart of Account (COA)

Assets

Code	Account Name	Type	Description
1000	Cash & Bank	Current Asset	Funds
1010	Accounts Receivable	Current Asset	Credit customers
1020	Inventory – Retail Goods	Current Asset	Stock
1100	Shop Fixtures	Fixed Asset	Store fittings
1101	POS Equipment	Fixed Asset	Billing systems

Liabilities

Code	Account Name	Type	Description
2000	Trade Creditors	Current Liability	Supplier dues
2001	GST Payable	Current Liability	Tax liability

Income

Code	Account Name	Type	Description
4000	Retail Sales	Income	Store sales
4001	Online Sales	Income	E-commerce sales

Expenses

Code	Account Name	Type	Description
5000	Purchases	Direct Expense	Goods purchase
5001	Shop Rent	Expense	Rent
5002	Staff Salaries	Expense	Payroll
5100	Advertising	Expense	Promotion
5101	Electricity Expense	Expense	Utilities
5102	Packaging Expense	Expense	Packing

Professional Accounting Tips

Construction

1. Track WIP carefully
2. Project costing essential

Pharma

1. Strong inventory + compliance tracking
2. R&D accounting important

IT

1. Human resource cost major factor
2. Subscription revenue tracking key

Retail

1. Inventory turnover critical
2. Margin monitoring essential

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Sandeep Ghatuary

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