Every report your business produces is shaped by one list most owners have never really looked at: the chart of accounts. It decides which numbers get their own line and which get lumped together, and so it decides what your profit and loss can and can’t tell you. If yours was copied from a software default, it measures what was easy to record rather than what you need to run the business.
That’s the New Wave principle: measure what matters, not what’s easy. A well-built chart of accounts turns bookkeeping into a management tool. A poorly built one produces tidy reports that quietly hide your margins.
Most guides stop at a definition. This one sets out the chart of accounts structure we recommend for a service business and a product business, and shows how to line it up with the ratios the ATO uses in its small business benchmarks, so the numbers you review each month are the numbers the ATO compares you against.
What Is a Chart of Accounts?
A chart of accounts is the master list of every category your business uses to record transactions. Each account has a name, a code, a type and, in Australian accounting software, a default GST treatment. Your financial reports are simply those accounts added up.
Accounts fall into five types:
- Assets: what the business owns or is owed, such as bank accounts, debtors, stock and equipment.
- Liabilities: what the business owes, such as suppliers, GST, PAYG withholding, super and loans.
- Equity: the owners’ stake, including capital, retained earnings and drawings.
- Income: money earned from sales and other sources.
- Expenses: the cost of earning that income, split between cost of sales and overheads.
Assets, liabilities and equity make up the balance sheet. Income and expenses make up the profit and loss, and our guide to reading a profit and loss statement like a CFO walks through that report line by line.
Easy vs What Matters: Where Most Charts of Accounts Go Wrong
The easy version requires no decisions. One Sales account for every revenue stream. One Wages account for everyone from the person on the tools to the office manager. A Sundry account that absorbs anything nobody was sure how to code. The BAS still balances, but your decisions suffer:
- Gross margin looks better than it is. When delivery wages sit in overheads, gross profit is overstated and you can’t tell whether pricing or productivity is the real issue.
- You can’t see which work makes money. A single Sales line can hide a profitable service carrying a loss-making one.
- Catch-all accounts grow. A Sundry account holding 5% of your costs is 5% of your spending nobody is managing.
- Your numbers don’t match outside benchmarks. The ATO compares businesses on specific ratios whether your chart is built for it or not.
Measuring what matters means deciding which questions your reports need to answer each month, then building the accounts so the answers fall straight out. Good management reporting works the same way: a report is only as useful as the coding underneath it.
Our Recommended Chart of Accounts for Service and Product Businesses
The two templates below are starting points, not a rigid standard. Every business needs tailoring, but the principles stay the same:
- Direct costs sit above gross profit. Anything that rises and falls with sales, including the wages of people delivering the work, belongs in cost of sales.
- Income is split the way you make decisions. By service line, channel or product group, but only where you’d act differently on the answer.
- The ATO benchmark lines get their own accounts. Rent, motor vehicle costs, wages and contractors stay separate and clean.
- Detail goes into tracking, not new accounts. Locations, jobs and departments belong in tracking categories, which keeps the chart short.
- GST is set at the account level. Each account carries the right default tax code, so routine coding produces a correct BAS.
Service Business Template
For consultancies, agencies, allied health, professional services and trades that mainly sell time and expertise.
| Section | Accounts | What it lets you see |
|---|---|---|
| Income | Fees by service line; recurring or retainer income; other income; interest income | Which services drive revenue, and how much of it repeats |
| Cost of sales | Direct wages (billable staff); super on direct wages; subcontractors; job materials and direct costs | True gross margin and the labour cost of delivering the work |
| Overheads: people | Admin and management wages; super on admin wages; workers compensation; training | Overhead staffing kept separate from delivery staffing |
| Overheads: premises and vehicles | Rent; utilities; motor vehicle expenses | Rent and vehicle ratios that match the ATO benchmark lines |
| Overheads: operations | Software; advertising and marketing; accounting and legal; insurance; bank and merchant fees; phone and internet; travel | The fixed cost base you need to cover every month |
| Balance sheet | Operating account; tax savings account; trade debtors; work in progress; trade creditors; GST; PAYG withholding; super payable; income tax payable; a loan account for each director | Cash position, money owed both ways, and tax set aside |
The director loan accounts matter more than they look. Money moving between a private company and its owners falls under its own tax rules (Division 7A), and a clean loan account for each person keeps them manageable at year end.
Product Business Template
For ecommerce, retail and wholesale businesses selling physical stock. If you sell online, this pairs with our approach to ecommerce bookkeeping.
| Section | Accounts | What it lets you see |
|---|---|---|
| Income | Sales by channel (own website, marketplaces, wholesale); shipping charged to customers; refunds and discounts as a separate line | Growth and margin by channel, and how much revenue is being given back |
| Cost of sales | Cost of goods sold; freight inwards, customs duty and import charges; packaging | Landed product margin |
| Selling costs | Outbound shipping and fulfilment; merchant and platform fees | Contribution margin: what each order really leaves behind |
| Overheads | Wages; super; rent or warehouse rent; motor vehicle expenses; advertising split by channel; software and apps; accounting and legal; insurance | Labour, occupancy and marketing as a share of turnover |
| Balance sheet | Inventory on hand; stock in transit; a clearing account for each payment platform; gift card and customer deposit liability; GST; trade creditors | Cash tied up in stock, and payouts that actually reconcile |
Two details do most of the work. A clearing account for each platform lets you record gross sales and fees, then match the net payout that lands in the bank, a common source of reconciliation errors for online sellers. And splitting advertising by the same channels as sales puts spend and return side by side.
How to Line Your Chart of Accounts Up With the ATO Benchmarks
The ATO publishes small business benchmarks by industry. According to its benchmark ratio methodology, it calculates five ratios from tax returns, each as a percentage of turnover excluding GST:
- Total expenses to turnover
- Cost of sales to turnover, excluding salary and wages
- Labour to turnover, which adds salary and wages to contractor, subcontractor and commission expenses
- Rent to turnover
- Motor vehicle expenses to turnover
These aren’t only a reference point for you. The ATO states that benchmarks are one of the tools it uses to identify businesses that may be avoiding their tax obligations, by comparing tax return figures with the industry range. It also says it never uses them in isolation, so sitting outside the range isn’t a problem in itself. You just want to know where you sit and why. In practice, that means:
- Give rent its own account, rather than bundling it into an occupancy line with power and cleaning.
- Keep motor vehicle costs together so fuel, registration, insurance and repairs total cleanly.
- Keep wages and contractors identifiable wherever they sit. The ATO’s labour ratio adds them together and its cost of sales ratio takes wages out, so separate accounts let you calculate your own gross margin and the ATO’s version from the same data.
Built this way, you can check your ratios against your industry range every quarter instead of discovering a gap after lodgement.
How to Clean Up a Chart of Accounts That Has Grown Messy
- Export the current list with year-to-date balances. Anything unused in 12 months is a candidate to archive.
- Map each existing account to the relevant template above, based on the questions your reports need to answer.
- Merge duplicates and archive rather than delete, so past reports still make sense.
- Recode the catch-alls, moving each item in Sundry or General Expenses to where it belongs.
- Check every account’s default GST code, which is where many BAS errors start.
- Move detail into tracking categories and update bank rules so new transactions land correctly.
- Time it well. The start of a financial year or quarter keeps comparisons clean, and your accountant should see the new structure before year-end tax mapping.
Whatever you change, keep the history intact. The ATO requires most business records to be kept for five years, and notes that ASIC requires companies to keep records for seven.
If the clean-up is bigger than an afternoon, our bookkeeping team handles clean-ups as a one-off job, separate from ongoing fixed monthly bookkeeping, and our Xero accountants map charts and set up tracking categories as part of Xero setup and migration. Doing your own books? The New Wave bookkeeping course covers setting up Xero properly, starting with the chart of accounts.
Frequently Asked Questions
How many accounts should a small business have?
There’s no fixed number, and more is rarely better. Xero’s guide to the chart of accounts suggests most small businesses do well with 30 to 60 accounts. If you need more detail, add tracking categories rather than new accounts.
Does the ATO require a specific chart of accounts?
No. The ATO doesn’t prescribe one. It does require records that explain your transactions, and it compares tax return figures with industry benchmarks, so a chart that keeps cost of sales, labour, rent and motor vehicle costs clean makes both easier.
What’s the difference between a chart of accounts and a general ledger?
The chart of accounts is the list of accounts. The general ledger is the record of every transaction posted to them. Think of the chart as the filing system and the ledger as everything filed in it.
Should wages go in cost of sales or overheads?
Wages for people who directly deliver your product or service belong in cost of sales. Management and admin wages belong in overheads. Keep them in separate accounts either way, so you can see your true gross margin and your total labour cost.
Final Thoughts: Build It Once, Read It Every Month
Your chart of accounts gets set up once and then shapes every report you read for years. An hour spent deciding what it should measure is one of the cheapest upgrades you can make to your decisions. Measure what matters, not what’s easy, and your numbers start doing real work.
If you’d like your chart reviewed against these templates, or rebuilt as part of moving to fixed-fee bookkeeping for your business, book a call with the New Wave team.
This article is general information only and doesn’t take your circumstances into account. It isn’t tax or financial advice. Speak with a qualified adviser before restructuring your accounting records. Information current as at October 2026.
