A chart of accounts (COA) is the foundation of your accounting system—a complete list of all accounts used to record financial transactions. For Pakistani businesses setting up accounting software, a well-designed chart of accounts ensures accurate reporting and easier financial management.

This guide explains what a chart of accounts is, how to set one up, and best practices for Pakistani SMEs.

What is a Chart of Accounts?

A chart of accounts is an organized list of all accounts in your general ledger, each with a unique code and name. It categorizes every transaction your business makes—sales, purchases, expenses, assets, and liabilities.

Think of it as the filing system for your finances. Every rupee that flows through your business gets recorded in one of these accounts.

The Five Main Account Types

Type	Description	Examples	Normal Balance
Assets	What you own	Cash, inventory, equipment, receivables	Debit
Liabilities	What you owe	Loans, payables, accrued expenses	Credit
Equity	Owner’s stake	Capital, retained earnings, drawings	Credit
Revenue	Income earned	Sales, service income, interest	Credit
Expenses	Costs incurred	Rent, salaries, utilities, purchases	Debit

Standard Account Numbering System

Account numbers help organize and quickly identify accounts. A typical numbering system:

Range	Account Type	Example Accounts
1000-1999	Assets	1000 Cash, 1100 Bank, 1200 Receivables, 1300 Inventory
2000-2999	Liabilities	2000 Payables, 2100 Loans, 2200 GST Payable
3000-3999	Equity	3000 Capital, 3100 Retained Earnings, 3200 Drawings
4000-4999	Revenue	4000 Sales, 4100 Service Income, 4200 Other Income
5000-5999	Cost of Sales	5000 Purchases, 5100 Freight Inward
6000-6999	Operating Expenses	6000 Salaries, 6100 Rent, 6200 Utilities
7000-7999	Other Expenses	7000 Interest, 7100 Bank Charges, 7200 Depreciation

Sample Chart of Accounts for Pakistani SME

Assets (1000-1999)

1000 - Cash in Hand
1010 - Petty Cash
1100 - Bank - HBL Current Account
1110 - Bank - UBL Savings Account
1200 - Accounts Receivable
1210 - Advances to Suppliers
1300 - Inventory - Trading Goods
1310 - Inventory - Raw Materials
1320 - Inventory - Finished Goods
1400 - Prepaid Expenses
1410 - Prepaid Rent
1500 - Fixed Assets - Furniture
1510 - Fixed Assets - Equipment
1520 - Fixed Assets - Vehicles
1530 - Fixed Assets - Computer/IT
1600 - Accumulated Depreciation - Furniture
1610 - Accumulated Depreciation - Equipment
1620 - Accumulated Depreciation - Vehicles

Liabilities (2000-2999)

2000 - Accounts Payable
2010 - Advances from Customers
2100 - Short Term Loan
2110 - Bank Overdraft
2200 - GST/Sales Tax Payable
2210 - Withholding Tax Payable
2220 - Income Tax Payable
2300 - Accrued Expenses
2310 - Salaries Payable
2400 - Long Term Loan
2410 - Vehicle Financing

Equity (3000-3999)

3000 - Owner's Capital
3100 - Retained Earnings
3200 - Owner's Drawings
3300 - Current Year Profit/Loss

Revenue (4000-4999)

4000 - Sales Revenue
4010 - Sales Returns and Allowances
4020 - Sales Discounts
4100 - Service Income
4200 - Interest Income
4300 - Other Income

Cost of Sales (5000-5999)

5000 - Purchases
5010 - Purchase Returns
5020 - Purchase Discounts
5100 - Freight Inward
5200 - Customs Duty
5300 - Direct Labor (Manufacturing)

Operating Expenses (6000-6999)

6000 - Salaries and Wages
6010 - Staff Benefits
6100 - Rent Expense
6110 - Utilities - Electricity
6120 - Utilities - Gas
6130 - Utilities - Water
6140 - Telephone and Internet
6200 - Office Supplies
6210 - Printing and Stationery
6300 - Marketing and Advertising
6310 - Sales Commission
6400 - Travel and Conveyance
6410 - Fuel Expense
6500 - Repairs and Maintenance
6600 - Insurance Expense
6700 - Professional Fees
6710 - Audit Fees
6720 - Legal Fees

Other Expenses (7000-7999)

7000 - Bank Charges
7010 - Interest Expense
7100 - Depreciation Expense
7200 - Bad Debts
7300 - Miscellaneous Expense

Setting Up Your Chart of Accounts

Step 1: Identify Your Needs

What type of business? (Trading, manufacturing, services)
What reports do you need? (P&L by department, project tracking)
What level of detail? (One utilities account vs. separate for each)
Tax requirements? (GST tracking, withholding tax)

Step 2: Start with Defaults

Most accounting software includes a default chart of accounts. Start with this and customize rather than building from scratch.

Step 3: Customize for Your Business

Add accounts specific to your industry
Remove accounts you will never use
Rename accounts to match your terminology
Set up sub-accounts for detailed tracking

Step 4: Set Up Tax Accounts

For Pakistani businesses, ensure you have:

GST/Sales Tax Payable
GST Input (for claiming)
Withholding Tax accounts
Income Tax Payable

Best Practices

Keep it simple: Start with fewer accounts; add more as needed
Be consistent: Use same naming conventions throughout
Think ahead: Design for future reporting needs
Use sub-accounts: For detail without cluttering main list
Review periodically: Remove unused accounts, add new ones
Document: Keep a guide explaining each account’s purpose

Common Mistakes to Avoid

Too many accounts: Creates confusion and slows data entry
Too few accounts: Limits reporting and analysis
Inconsistent naming: “Phone Expense” vs “Telephone” vs “Mobile”
No numbering system: Makes navigation difficult
Mixing account types: Asset in expense category

Frequently Asked Questions

Can I change my chart of accounts after starting?

Yes, but carefully. You can add new accounts anytime. Renaming is usually safe. Deleting accounts with transactions is not recommended—mark them inactive instead. Merging accounts requires careful transaction review.

How many accounts should a small business have?

A typical small business needs 30-50 accounts. Very small businesses may work with 20-30. Complex businesses may need 100+. Start simple and expand as needed.

Should I use account numbers?

Yes. Account numbers make sorting consistent, data entry faster (type number instead of name), and reporting organized. Most accounting software supports numbering.

What is the difference between accounts and sub-accounts?

Sub-accounts provide detail under a parent account. For example, Utilities (parent) with Electricity, Gas, Water (sub-accounts). Reports can show summary (parent) or detail (sub-accounts) as needed.

Do I need separate accounts for GST?

Yes. Track GST collected (liability) and GST paid on purchases (asset or contra-liability) separately. This makes GST return filing easier and ensures compliance with FBR requirements.

Conclusion

A well-designed chart of accounts is the foundation of good financial management. Take time to set it up properly, and your financial statements, tax filings, and business decisions will all benefit.

Need help setting up your accounting system? HysabOne comes with a pre-configured chart of accounts for Pakistani businesses, ready to customize for your needs. Contact us on WhatsApp for a demo.

Last Updated: December 2024

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How to Set Up Chart of Accounts for Your Business: Complete Guide