The Chart of Accounts is like a table of contents for your finances. The best way to conceptualize a chart of accounts is as a tree. The main branches represent entire categories or groups, while the leaves of the tree denote individual bank accounts or expense categories. When a summary report is requested, typically only the main branches are shown in the report, rather than the individual accounts. For example, a chart of accounts might look like the following:
300 Expenses | +--310 Living Expenses | | | +--311 Beer | | | +--312 Cable | +--320 Business Expenses | | | +--321 8-inch Floppies | | | +--322 Blue Ray RW DVDs | | : :
Note that accounts not only have names; they may have codes, to order the accounts. When a report is generated, the sort order is determined by the numbering. It’s customary to have the leaf accounts end in non-zero digits, while parent nodes have increasing numbers of zeros.