Chart of Accounts for Startups: Definition, Numbering and a Full SaaS Example

A chart of accounts is the numbered list of every account a company uses to record transactions in its general ledger, grouped into assets, liabilities, equity, revenue and expenses. Every transaction lands in one of these accounts, so the chart decides what your financial statements, tax return and investor reports can show.

A simple example. Your startup pays $1,800 up front for an annual software subscription. The bookkeeper debits Prepaid software and credits Operating checking, then moves $150 a month into Software subscriptions expense. Three accounts, one purchase, and the cost shows up in the twelve months the software is used.

The five account types and their normal balances:

• Assets (debit): cash, receivables, prepaid expenses, equipment.
• Liabilities (credit): vendor bills, accrued payroll, deferred revenue, loans and, for many startups, SAFEs.
• Equity (credit): stock, additional paid-in capital, accumulated deficit.
• Revenue (credit): what customers pay for, recognized when earned.
• Expenses (debit): cost of revenue and operating expenses.

The first three make the balance sheet; the last two make the income statement.

The IRS does not prescribe a chart. Publication 583 says that except in a few cases the law does not require any specific kind of records, as long as your system clearly shows income and expenses. Your books do have to tie to the return: Form 1120 includes a balance sheet per books (Schedule L) and a book-to-tax reconciliation (Schedule M-1), both built from your chart. Corporations with total receipts and total assets under $250,000 can skip them via Schedule K, question 13, but most funded startups outgrow that in year one.

Most charts use four-digit numbers where the first digit tells you the account type. That convention lets anyone, from your bookkeeper to a Series A diligence team, read your ledger without a legend.

• 1000-1999: Assets
• 2000-2999: Liabilities
• 3000-3999: Equity
• 4000-4999: Revenue
• 5000-5999: Cost of goods sold (cost of revenue for software companies)
• 6000-6999: Operating expenses
• 7000-7999: Other income and expense
• 8000-8999: Income tax expense

QuickBooks Online's help pages suggest the same ranges in five digits (10000-19999 for assets, and so on). Four digits is enough for a startup.

Rules we use when building a chart:

1. Order balance sheet accounts by liquidity (cash, receivables, prepaids, fixed assets) and liabilities by when they come due.
2. Leave gaps of 10 between accounts and 100 between groups, so a Treasury bill account added in year two goes at 1030 and nothing is renumbered.
3. Order expense accounts the way your board deck presents them.
4. Use sub-accounts only where someone actually asks for the parent total, such as total payroll.
5. Never reuse a number for a different purpose. Retire accounts by making them inactive, not by deleting them, so prior periods still report correctly.

Below is a complete chart of accounts for a hypothetical Delaware C-Corp: a B2B SaaS company with a $1.5M seed raised on SAFEs, 15 employees, monthly and annual plans billed through Stripe. It has 61 accounts. The last column shows where each account usually lands on Form 1120: a page 1 line for income and deductions, Schedule L for balance sheet accounts, and Schedule M-1 for items whose book and tax treatment differ.

Two choices here are deliberate. There is one Salaries and wages account, not one per department; department lives in a class on every payroll, contractor and software line, which produces R&D, sales and marketing and G&A totals without tripling the account count. And the accounts that create book-tax differences (6040, 6710, 6720, 7300, 8000) stand alone, so Schedule M-1 is a report, not a project.

Generic templates miss the accounts that venture-backed companies need for convertible money, annual contracts, options and research.

SAFEs and convertible notes (2500 or 3150, 2510, 2520). SAFE cash is never revenue and never a vague owner contribution. Many SAFEs are classified as liabilities under US GAAP because of their conversion and redemption features; some are classified in equity. Document the treatment once in a short memo, use the matching account, and keep investor detail in the cap table. A hypothetical $500,000 convertible note at 6% simple interest accrues $500,000 x 6% / 12 = $2,500 a month: debit 7100, credit 2520.

Deferred revenue (2200). A customer pays $24,000 on January 1 for a 12-month subscription. Debit cash and credit Deferred revenue $24,000, then move $2,000 a month into Subscription revenue. At March 31, $18,000 is still owed in service. Without this account, January revenue is overstated by $22,000.

Section 174A research tracking (R&D class, 6100 and 6110). For tax years beginning after December 31, 2024, Section 174A lets you deduct domestic research and experimental expenditures currently, or elect to amortize them over at least 60 months. Foreign research is still amortized over 15 years. So the ledger must know two things about every engineering cost: is it research, and where was the work done. Rev. Proc. 2025-28 also confirms that, under amended Section 280C(c), the domestic R&E deduction is reduced by the research credit unless you elect the reduced credit on Form 6765.

R&D payroll credit receivable (1250). A qualified small business (gross receipts under $5 million for the year, and none before the five-tax-year period ending with that year) can elect up to $500,000 of research credit against payroll tax on Form 6765. It offsets the employer share of Social Security tax, then Medicare, starting the first calendar quarter after the income tax return is filed, claimed on Form 8974 with Form 941. Book the elected amount to 1250 when you file and draw it down each quarter. Agree the income statement side with your accountant and keep it consistent.

Prepaids and accrued payroll (1200, 1210, 2110). Without prepaids, a $36,000 annual insurance premium lands in one month and distorts burn. If the last pay date falls before month end, accrue the remaining days' wages and any earned bonuses.

Stock-based compensation (6040 and 3120). ASC 718 expense for options and RSUs, debited by department and credited to APIC. It is non-cash, so investors exclude it from burn, and its tax deduction follows a different schedule, which makes it a standard Schedule M-1 item.

Delaware franchise tax (2340 and 6800). The annual report and franchise tax are due March 1. The report fee is $50; the minimum tax is $175 under the authorized shares method and $400 under the assumed par value capital method; the maximum is $200,000 ($250,000 for large corporate filers). Under the authorized shares method, 10,000,000 shares produces $250 + (999 x $85) = $85,165, which is why startups with large share counts recalculate under the assumed par value capital method. Accrue monthly and book the amount actually filed. A late report costs $200 plus 1.5% monthly interest on unpaid tax; send the penalty to 7300.

Your chart maps to Form 1120 through the trial balance: each income and expense account rolls up to a page 1 line, and each balance sheet account to Schedule L. If an account mixes items for different lines, or deductible and nondeductible items, the preparer splits it by hand.

Separations that save real time at tax time:

• Officer compensation (6010) apart from wages (6000). Officer pay goes on line 12, other wages on line 13, and once total receipts reach $500,000, Form 1125-E must list officer compensation.
• Payroll taxes (6020) and Delaware franchise tax (6800). Both are taxes paid or accrued, reported on line 17. Federal income tax is not deductible and belongs in 8000.
• Meals (6710) apart from entertainment (6720). The Form 1120 instructions generally limit meal deductions to 50% and disallow entertainment. Schedule M-1 has a line for meals not deductible under Section 274(n).
• Penalties (7300). Fines and similar penalties paid to a government for violating a law are generally not deductible.
• Formation costs (6520). Publication 583 allows up to $5,000 of start-up costs and $5,000 of organizational costs in year one, each reduced by the amount the costs exceed $50,000. The remainder is amortized over 180 months on line 26.
• Fixed assets (1400) and depreciation (6900). Book and tax depreciation rarely match, especially with 100% bonus depreciation permanent for property acquired after January 19, 2025. Keep an asset list.
• Cost of revenue (5000s). Cost of goods sold on line 2 is supported by Form 1125-A. Many SaaS companies report hosting as deductions instead; pick one and stay consistent.

At $10 million or more of total assets at year end, the company files the more detailed Schedule M-3 instead of M-1. A chart with these separations handles it without restructuring.

Investors read your chart through two numbers above all: gross margin and burn. Both depend on which account and class a cost lands in, so a coding choice in month two moves the metric a board sees in month eighteen.

A worked example for a hypothetical SaaS company in one month:

• Revenue recognized (4000-4200): $250,000
• Hosting (5000): $22,000
• Embedded software (5100): $4,000
• Payment processing (5200): $7,500
• Support and success payroll (5300): $18,000

Cost of revenue is $51,500, so gross margin is ($250,000 - $51,500) / $250,000 = 79.4%. If the support payroll had been coded to 6000 with a G&A class, cost of revenue would be $33,500 and gross margin would show 86.6%. Diligence teams restate exactly that kind of 7.2-point overstatement.

Burn is a cash measure: the drop in cash during the month, excluding financing inflows. If cash goes from $6,200,000 to $5,840,000 with no new money raised, net burn is $360,000 and runway is $5,840,000 / $360,000 = 16.2 months. Burn diverges from net loss in predictable places:

• Stock-based compensation (6040) is in net loss but not in burn.
• Annual prepayments run through deferred revenue (2200), so January cash exceeds January revenue.
• Prepaids and accruals shift expense away from the month cash moves.

Write the board-deck mapping down once: 4000s are revenue, 5000s cost of revenue, 6000s by class become R&D, sales and marketing and G&A, and 7000s and 8000s sit below operating loss.

The balance sheet sections barely change across business models. Revenue, cost of revenue and a few balance sheet accounts change a lot, because each model answers "what did it cost to deliver what we sold" differently.

Decision rules by model:

• SaaS: if any contracts are billed annually in advance, you need deferred revenue from the first one. ASC 606 recognizes revenue as each performance obligation is satisfied, and services revenue usually follows a different pattern than subscriptions, so give it its own account.
• Ecommerce: inventory brings Form 1125-A, an inventory method decision and a monthly reconciliation. Book marketplace sales gross with fees in cost of revenue, not as net payouts, and keep a sales tax payable sub-account for each state where you are registered.
• Services: use a class by client or project for project margins. A revenue account per client stops working past a handful of customers.

Most chart problems come from three habits: adding accounts instead of tags, mixing founder and company money, and skipping department tracking.

Too many accounts. A chart with 200 accounts, one per vendor or employee, makes reports unreadable and coding inconsistent. Use the vendor field for vendors and a class for departments. A seed or Series A company rarely needs more than 70 accounts.

Mixing personal and business. Publication 583 tells businesses to keep the business account separate from personal checking. Each founder-paid expense needs a receipt and an entry to Due to founders (2600), repaid or converted with board approval. A few are fine; hundreds become a cleanup project and a diligence question.

No class or department tracking. Without department tags you cannot produce R&D, sales and marketing and G&A totals, support the research credit or Section 174A, or show investors where headcount spend goes. Retrofitting a year of tags means reopening every payroll journal.

Other mistakes to check for:

• Stripe payouts booked as revenue instead of gross charges, with fees in 5200 and refunds in 4900.
• SAFE proceeds booked to revenue or a generic owner contribution account.
• One lump payroll account with no officer split.
• A standing balance in Uncategorized or Ask my accountant. Both should be zero at every close.
• Deleting accounts with history, or renaming one mid-year so it means something different.

Set up the chart before the first bank feed connects, because every transaction coded against a bad chart has to be moved later. Menu paths come from the vendors' help pages as checked in November 2026; confirm them in your file.

QuickBooks Online:

1. Confirm your plan. Intuit states that class tracking is available in Plus and Advanced, not Simple Start or Essentials.
2. Turn on account numbers: Settings, Account and settings, Advanced, edit Chart of accounts, then switch on Enable account numbers and Show account numbers.
3. In the chart of accounts, use Batch edit to enter each number. QuickBooks does not allow two accounts to share a number.
4. Turn on classes: Settings, Account and settings, Advanced, Categories, Track classes. Turn on the warning for transactions saved without a class.
5. Create department classes (R&D, Sales and marketing, G&A, Cost of revenue) and map each employee's class in your payroll provider.

Xero:

1. Give every account a code that follows the same numbering scheme.
2. Create a Department tracking category first. Xero limits how many tracking categories can be active at once, so check the current limit in Xero Central before planning a second (for example, domestic versus foreign).
3. Require tracking in bank rules for payroll, contractor and software accounts.

Both ledgers:

• Inactivate default accounts that do not apply, such as owner draws.
• Have payroll post one journal entry per pay run, split by department, with officer pay separate.
• Have Stripe or your billing tool post gross charges, fees and refunds separately.
• Write a one-page account policy covering what goes where, your capitalization threshold and SAFE classification.
• Set a closing date after each monthly close.
• Reconcile every balance sheet account monthly, including 1250, 2200 and 2340.

Restructure the chart when an outside reader is about to rely on your books in a new way: a priced round, a first audit, an ERP migration or a second entity. Do it at a period boundary, ideally the start of a fiscal year, and never in the middle of diligence.

Triggers that justify the work:

• About three months before a priced round. Investors will rebuild gross margin and burn from your trial balance. Fix the chart before the data room opens.
• Before a first audit. Auditors want every balance sheet account tied to a supporting schedule, with clear accounts for deferred revenue, deferred commissions, stock-based compensation and SAFEs or notes.
• Moving to an ERP. Migrating a messy chart moves the mess to a more expensive system. Clean it first.
• A second entity. A subsidiary needs intercompany accounts, and both charts need the same numbering so consolidation is mechanical.
• More than about 100 active accounts at a company under 50 people.

How to restructure without breaking history:

1. Map every old account to its new account.
2. Create the new accounts and inactivate, not delete, the old ones.
3. Move year-to-date activity with dated reclassification entries.
4. Restate prior-year comparatives in your reporting pack, not in the closed ledger, so filed returns still tie to the books.
5. Send the mapping to your tax preparer before year end.

If your chart came from a template or your software's signup default, the fastest fix is to have someone who builds startup books every week rebuild it once, map it to your board deck and Form 1120, and close the next month on it.

That is part of SpryTax's bookkeeping service, which starts at $399/month on its own, with monthly financial statements included in the Growth plan ($599/month). Plans start at $299/month with no setup fees, and federal Form 1120 filing is included in every plan. Onboarding starts with two weeks of cleanup, then books closed by day 10 every month.

Email [email protected] with your ledger (QuickBooks Online or Xero), how you have raised so far (SAFEs, notes or a priced round), headcount and when you plan to raise next, so our first reply can be specific to your chart.

This guide is general information as of November 2026, not tax or accounting advice for your specific facts. SAFE classification, R&D credit treatment and your Section 174A position depend on your contracts and numbers.