Your chart of accounts is the list of buckets every transaction gets sorted into. Bank, Sales, Marketplace Fees, Inventory, Sales Tax Payable — each is an account, and each transaction lands in at least two of them.
It sounds like filing. It is actually the decision that determines what your reports can tell you, because a report can only ever break things down as far as your accounts do.
The five types
Every account is exactly one of these, and the type decides which report it appears on:
| Type | Report | Examples |
|---|---|---|
| Asset | Balance Sheet | Bank, Inventory, marketplace receivables |
| Liability | Balance Sheet | Credit card, sales tax payable, unpaid bills |
| Equity | Balance Sheet | Owner's investment, retained earnings |
| Income | Income Statement | Sales, refunds (as a contra account) |
| Expense | Income Statement | Marketplace fees, shipping supplies, software |
Get the type wrong and the number lands on the wrong report entirely. Sales tax collected recorded as an expense instead of a liability, for instance, understates your profit and hides a debt you owe — which is a real error this product has had to correct in real books.
Why it decides what you can learn
Suppose every marketplace deduction goes into one account called "Fees."
Your Income Statement will faithfully report one number. It can never tell you how much went to final value fees versus fulfillment versus advertising versus storage — because that distinction was thrown away at the moment of recording, and no report can recover it.
Split those into separate accounts and the same report answers a question you could not ask before: which fee is growing faster than my sales?
You cannot report on a distinction you did not record. That is the whole reason to think about this at all.
Not too many, either
The opposite failure is just as real. A separate account for every product line, every supplier, every kind of postage produces a Trial Balance nobody reads and a hundred places to file a receipt wrongly.
A useful test: would you ever make a different decision because these two numbers were separate? If yes, separate accounts. If no, one account.
Parents and children
Accounts nest. "Marketplace Fees" can be a parent with "eBay Final Value Fee", "eBay Store Subscription" and so on beneath it. Reports roll the children into the parent, so you get the summary by default and the detail when you want it — one structure, both views.
What you start with here
Every company is provisioned with a starter chart already mapped to the categories a US small business tax return expects, so the accounts your accountant asks for exist from day one.
You can add your own, rename most of them, and deactivate ones you never use. A few are protected from renaming or deletion because other parts of the app resolve them by code — Retained Earnings is the clearest example, and QuickBooks and Xero both protect it harder than this does.