Why it matters
The chart of accounts decides how the books are organized and how the financial statements read. A chart with too many accounts is hard to use; a chart with too few hides the detail the owner needs.
Example
A small service business uses one income account, one payroll account and a short list of expense accounts. A retail business adds inventory, cost of goods sold and sales by channel.
Related terms
Questions about Chart of accounts
Can a chart of accounts be changed after the books start?
Yes, but changes should be planned. Renaming or merging accounts changes how the reports read, so the firm should update the opening balances and explain the change to the client.