Chart of Accounts

What Is a Chart of Accounts?

A chart of accounts is the complete list of ledger heads (the named accounts) that a business posts its entries to, usually grouped under assets, liabilities, capital, income and expenses. In India it also carries the GST heads (output tax and input tax credit) that a regular GST-registered business must track. It is the skeleton your trial balance, profit and loss account and balance sheet are later built from.

Think of it as the index of your books. It holds no amounts at all. The amounts live in the general ledger, filed under the heads the chart lays down.

What Goes Into a Chart of Accounts

Five groups, one list of heads Chart of accounts Assets 1000s Liabilities 2000s Capital 3000s Income 4000s Expenses 5000s Bank, input GST Output GST Owner’s capital Sales Rent, freight Balance sheet Profit and loss The first three groups feed the balance sheet and the last two feed the profit and loss account, which is why each head must sit in the right group from day one.

Most Indian businesses, from a kirana store to a private limited company, sort their heads into five groups. Companies usually call the capital group shareholders’ funds, or equity if they follow Ind AS (Indian Accounting Standards).

• Assets: what the business owns or is owed, such as cash, bank, stock and customer dues
• Liabilities: what it owes, such as supplier dues, loans and GST collected but not yet paid
• Capital: the owner’s money in the business, and drawings taken out of it
• Income: sales and any other earnings
• Expenses: purchases, rent, wages, power and everything else spent to run the place

Each head usually gets a short code as well, with one block of numbers per group. The codes are a convention, not a legal requirement, and many accounting packages work with group names instead. What matters is that every head appears once, in one group, under one name.

The first three groups end up in the balance sheet, and the last two make up the profit and loss report. This balance sheet format guide shows where each asset and liability head sits.

Chart of Accounts vs General Ledger

People mix the two up because both look like lists of accounts. One is the plan and the other is the record.

So a new rent agreement adds nothing to the chart if a Rent head already exists. It simply adds entries to the ledger.

Chart of Accounts Example

A seeds, fertiliser and pesticide shop near Powai Naka in Satara set up its books in April 2026 with codes in five blocks. It buys some stock from Gujarat, so it needs an IGST input head as well as CGST and SGST, and it sells to farmers on credit through the kharif season.

Note: this is an invented example for illustration only. The shop, its suppliers and every code are made up.

June shows why separate heads matter. A lorry bill for urea from Kolhapur goes to Freight inward (5110), not to Purchases, so the owner can see what moving stock costs. Freight still counts in the value of closing stock.

If that lorry bill comes from a goods transport agency that does not charge GST itself, the shop pays 5% under reverse charge, which is what head 2120 is for.

Why a Clean Chart Pays Off at Year End

A chart built carelessly in April gets paid for in March. Among the traders we work with, the mess usually starts with a catch-all “Miscellaneous” head that quietly swallows entries belonging to other heads, so nobody can say what freight or repairs really cost that year.

GST makes the heads matter more. Rule 56(4) of the CGST Rules asks every registered person outside the composition scheme to keep an account of tax payable, tax paid, input tax and input tax credit claimed. Separate CGST, SGST (or UTGST) and IGST heads are the plain way to keep that account.

When those heads are clean, your profit and loss account and GST return agree with your books without a guessing game. A GST ITC reconciliation template helps you match the input heads to the return each month.

Which format and which GST heads you need depends on who you are:

• A company presents its accounts in the Schedule III format of the Companies Act, 2013, so its groups should map onto those headings
• A proprietorship or partnership whose accounts a CA prepares or audits follows ICAI’s format for non-corporate entities. It applies above Rs.5 crore turnover from FY 2025-26, and to every such firm from FY 2026-27
• An LLP follows a separate ICAI format on the same timeline
• A composition dealer cannot claim input tax credit, so it needs no input GST heads. It needs heads only for the composition tax and any reverse-charge tax it pays, both of which are costs to it
• An unregistered business needs no GST heads at all

If your trial balance never agrees, this guide to trial balance errors shows where a wrongly grouped head usually hides.

Keep Every Entry Under the Right Head

A chart only helps if the entries actually land where it says. For retail businesses, Petpooja Invoice lists a Chart of Accounts in its plans, along with Journal Entry Reports, Profit and Loss Reports and a Balance Sheet. Its finance tools also list expense categorisation and bookkeeping records.

For restaurants, you punch every bill on Petpooja POSS and get 100+ downloadable reports on sales, inventory, cancelled orders and payments, including the sales figures you post to your income heads.

Picture a profit and loss account where every rupee sits under a head you chose, and see what that looks like on Petpooja Invoice.

Frequently Asked Questions