A chart of accounts is the list of categories your business sorts its transactions into — the index of your books. Every account belongs to one of five types: assets, liabilities, equity, income and expenses. For a sole trader the whole thing should fit on one screen, and the single most useful design rule is that your categories should match the labels on your tax return and BAS, so nobody has to re-sort them at the end of the year.
The five account types
| Type | What it is | Typical range |
|---|---|---|
| Assets | What the business owns or is owed — bank accounts, unpaid customer invoices, equipment. | 1000–1999 |
| Liabilities | What the business owes — supplier bills, GST collected but not yet remitted, loans, credit cards. | 2000–2999 |
| Equity | The owner’s stake. For a sole trader: money you put in, drawings you take out, and accumulated profit. | 3000–3999 |
| Income | What you earn — services, product sales, interest, anything else. | 4000–4999 |
| Expenses | What it costs to earn it — materials, subcontractors, vehicle, software, insurance, depreciation. | 5000+ |
The numbering is a convention, not a rule — it exists so accounts sort into a sensible order and so there is room to insert new ones without renumbering. Assets, liabilities and equity make up the balance sheet; income and expenses make up the profit and loss.
What a sole trader's chart looks like
Twenty to thirty accounts is plenty for one person. A workable starting point, with the accounts that are specific to being a sole trader marked:
- Assets — Business bank account, Accounts receivable, Equipment, Accumulated depreciation.
- Liabilities — Accounts payable, GST collected, GST paid, Credit card, Tax set aside.
- Equity — Owner's contributions, Drawings, Retained earnings.
- Income — Services income, Product sales, Interest income, Other income.
- Expenses — Contractors and subcontractors, Materials and cost of sales, Motor vehicle, Home office, Software and subscriptions, Insurance, Bank and merchant fees, Accounting and legal, Advertising, Telephone and internet, Tools and small equipment, Training, Depreciation, Other expenses.
Drawings is the one people get wrong. Money you take out of a sole trader business is not a wage and not an expense — it is a reduction in your equity. Coding it to an expense account understates your profit and overstates your deductions, which is a mistake in the direction the ATO cares about. See how a sole trader is taxed.
Design it backwards from the tax return
The business schedule of an individual tax return asks for expenses in named groups — cost of sales, contractor and consultant payments, motor vehicle expenses, rent, repairs and maintenance, depreciation, all other expenses. Your BAS asks for total sales, GST on sales and GST on purchases.
If your accounts line up with those, preparing the return is transcription. If they do not, someone maps a hundred lines of "Miscellaneous" into the right boxes, and if that someone is your accountant you are paying for it by the hour. Build the chart once, against the form you will actually have to fill in.
GST codes belong on accounts
If you are registered for GST, each account carries a default tax treatment, and setting those correctly is what makes your BAS fill itself in:
- Taxable — most sales and most purchases from GST-registered suppliers.
- GST-free — basic food, most health and education, some exports.
- Input taxed — residential rent, most financial supplies.
- No GST — wages, drawings, tax payments, purchases from suppliers who are not registered.
The recurring error is claiming GST on a purchase from a supplier who is not registered for it. There is no GST on that invoice to claim, whatever the total looks like — check the supplier on ABN Lookup if you are not sure.
Common mistakes
| Mistake | Instead |
|---|---|
| An account per client or per supplier | Clients belong in contacts, not in the chart of accounts. One "Services income" account with the client on each transaction gives you the same reporting without a chart that grows forever. |
| Coding drawings as wages | A sole trader cannot pay themselves a wage. Drawings is an equity account, not an expense, and it is not deductible. |
| A "Miscellaneous" account that collects everything | If more than a few per cent of spending lands there, the chart is missing a category. Miscellaneous is also the first thing anyone reviewing your return will ask about. |
| Splitting too finely | Separate accounts for pens, paper and printer ink tell you nothing you could not get from a single "Office supplies". Split an account only when you would act on the number. |
| Deleting or renaming accounts mid-year | Add the replacement and stop using the old one. Deleting breaks comparatives and can orphan historical transactions. |
Changing it later
You will want to, and you should — but do it at a financial year boundary wherever possible. Renaming or merging accounts mid-year makes this year's figures incomparable with last year's, which quietly destroys the main thing a chart of accounts is good for. If you must change mid-year, add the new account and stop using the old one rather than deleting it; the history stays intact.
Related reading
- What is bookkeeping? — the routine this supports
- Cash vs accrual accounting — when a transaction lands in an account
- Sole trader tax deductions — what the expense accounts should reflect
- GST and BAS reporting — the categories tallied as you go
Frequently asked questions
Twenty to thirty is plenty. The test for adding one is whether you would do something differently as a result of seeing that number on its own. If the answer is no, it belongs inside a broader category. A chart with a hundred accounts takes longer to code against and tells you less.
Drawings, which is an equity account. As a sole trader you and the business are the same legal entity, so taking money out is not a wage and is not a deductible expense — it simply reduces your equity in the business. Coding it as an expense understates your profit, which is an error in the direction that matters.
No. There is no prescribed chart of accounts for Australian small businesses. What matters is that your categories map cleanly onto the labels on your tax return and BAS, because that is what the records ultimately have to produce. Design it against those forms rather than against a generic template.
Convention and sorting. Numbering assets in the 1000s, liabilities in the 2000s and so on makes accounts appear in a logical order in reports and leaves gaps so you can insert new ones without renumbering. Nothing requires it, and small charts work fine without numbers at all.
You can, but do it at a financial year boundary if you have the choice. Renaming or merging accounts mid-year makes the current year incomparable with the last, which is most of what the chart is for. If you must, add the new account and stop using the old one rather than deleting it.
Sources
The expense groupings on the business schedule, BAS labels and the GST treatment categories come from the Australian Taxation Office. Confirm the current labels for your year at ato.gov.au or with a registered tax agent. Balaana is bookkeeping software, not a tax agent — this article is general information, not personal tax advice.