If the phrase Chart of Accounts makes your eyes glaze over, you are not alone.
It sounds like one of those bookkeeping terms that should come with a translator and a stiff drink, but the idea behind it is actually pretty simple. A Chart of Accounts is just the master list of categories used to organize the money moving through your business.
In other words, it is how your bookkeeping system knows the difference between an Etsy sale, yarn or fabric you bought for products, website hosting, a sales tax payment, and money you transferred into the business from your personal account.
This matters because if your categories are a mess, your bookkeeping reports will be a mess too. And when your reports are a mess, it gets a whole lot harder to tell what is really going on in your handmade business.
This post is part of the Accounting Speak for Handmade Business Owners series. If you missed the first post, start here: Accounting Speak in Your Handmade Business
Short on time? Here’s what we’re talking about in this post:
- What is a Chart of Accounts?
- Why does a Chart of Accounts matter in a handmade business?
- What categories are usually on a Chart of Accounts?
- What might this look like in a real handmade business?
- Do you need a huge Chart of Accounts?
- What if you use bookkeeping software?
- The main thing to remember
What is a Chart of Accounts?
A Chart of Accounts is the main list of bookkeeping categories for your business.
Every transaction that gets entered into your bookkeeping system has to go somewhere. Sales need a category. Expenses need a category. Inventory needs a category. Sales tax needs a category. Money you put into the business or take out of it needs a category too.
That list of categories is your Chart of Accounts.
You can think of it like the map behind your bookkeeping. It tells your software, spreadsheet, or records where each piece of financial information belongs so your reports can be organized in a way that actually makes sense.
What if you’re using spreadsheets instead of bookkeeping software?
Most spreadsheet bookkeeping systems do not have a formal Chart of Accounts built into them the way bookkeeping software does. But the concept still matters. In a spreadsheet system, the categories are often built into the layout through tabs, headings, dropdowns, and summary sections. So even if you do not see a page called “Chart of Accounts,” your system still needs a clear way to sort income, expenses, sales tax, owner money, and the other moving parts of your business. That is one reason a well-designed spreadsheet matters so much, because the structure is doing a lot of the organizing work for you.
For handmade business owners who prefer spreadsheets, the 10-Minute Bookkeeper includes this kind of structure already built in.
Why does a Chart of Accounts matter in a handmade business?
Because handmade businesses usually have more moving parts than people realize.
You are not just tracking money in and money out. You may also be dealing with raw materials, finished products, packaging, sales platforms, craft shows, merchant fees, website expenses, sales tax, and owner draws. If all of that gets lumped together in random categories, your numbers stop being useful.
A good Chart of Accounts helps you answer questions like:
- What am I actually bringing in from sales?
- What is it costing me to make and sell my products?
- What expenses are just part of running the business?
- Do I have inventory sitting on the shelf?
- How much do I owe in sales tax or on a credit card?
- Did I actually make money, or did it just feel busy?
That is why this matters. The Chart of Accounts is not just bookkeeping busywork. It is part of what helps you see what is really happening in your business.
What categories are usually on a Chart of Accounts?
Most handmade businesses will have categories that fall into a few main groups.
Some systems use account numbers. Some mostly use names. Some use both. You do not need to get hung up on the numbering. The important part is understanding the buckets and using the right ones consistently.
Here are the main categories you will usually see.
1. Assets
Assets are what your business owns.
For a handmade business, that might include:
- money in your business checking account
- savings
- materials inventory
- finished goods inventory
- equipment such as a sewing machine, heat press, kiln, Cricut, or other tools with ongoing value
If you want to go deeper on this one, read: Assets – Accounting Speak for your handmade business
2. Liabilities
Liabilities are what your business owes.
For example:
- a business credit card balance
- sales tax collected but not paid yet
- a loan balance
- a payment plan for equipment or software
This is where a lot of people get tripped up, especially with sales tax, because that money is not really yours to keep.
Related post: Liabilities – Accounting Speak for your handmade business
3. Equity
Equity is the owner’s stake in the business.
In plain English, this usually includes:
- money you put into the business
- profits that stay in the business
- money you take out for yourself
This is one of those categories that sounds fancier than it is. You do not need to make it weird.
Related post: Equity – Accounting Speak for your handmade business
4. Income
Income is the money your business earns from normal business activity.
For handmade business owners, that might include:
- Etsy sales
- Shopify sales
- craft fair sales
- wholesale orders
- pattern sales
- custom order income
Related post: [Link to: Income post]
5. Cost of Goods Sold
Cost of Goods Sold, often shortened to COGS, includes the direct costs connected to the products you sell.
Depending on how you run your business and how detailed your bookkeeping is, that might include things like:
- materials used in sold products
- packaging tied to sold orders
- direct production costs
- certain fees directly tied to sales, if that is how your system is set up
This is one of the biggest areas handmade business owners need to understand because it affects whether your products are actually profitable.
Related post: [Link to: Cost of Goods Sold post]
6. Overhead Expenses
Overhead expenses are the costs of running your business that are not directly tied to making a specific product.
That might include:
- website hosting
- email marketing software
- bookkeeping software
- office supplies
- general advertising
- education
- phone or internet used for the business
- admin tools and subscriptions
These are still real business expenses. They just belong in a different bucket than the direct costs of making what you sell.
Related post: Overhead Expenses Demystified for your handmade business
7. Other Income
Other Income is money that comes into the business but is not part of your usual day-to-day sales.
This could include things like:
- affiliate income
- ad revenue
- cashback rewards
- a one-off income item that is not part of your regular product sales
Not every handmade business will have much in this category, and that is fine.
8. Other Expenses
Other Expenses are costs that do not fit your normal operating expenses.
This category tends to be less common in a simple handmade business, but it can come up in certain situations. The main thing is not to dump random stuff here just because you are not sure where it goes.
Related post: [Link to: Other Income + Other Expenses post]
What might this look like in a real handmade business?
Here is a simple example of what a Chart of Accounts could include for a maker.
Asset accounts
- Business Checking
- Business Savings
- Materials Inventory
- Finished Goods Inventory
Liability accounts
- Business Credit Card
- Sales Tax Payable
Equity accounts
- Owner Contribution
- Owner Draw
Income accounts
- Etsy Sales
- Shopify Sales
- Craft Fair Sales
- Wholesale Income
- Pattern Sales
Cost of Goods Sold accounts
- Materials Used
- Packaging for Orders
- Production Supplies
Overhead Expense accounts
- Website Hosting
- Email Marketing
- Bookkeeping Software
- Office Supplies
- Education
- General Advertising
Other Income accounts
- Affiliate Income
- Ad Revenue
That does not mean you need every one of those accounts. It just shows how the system works. The goal is not to build the most impressive Chart of Accounts on earth. The goal is to have one that helps you keep your numbers organized and readable.
If you are reading this and realizing you do not want to build a Chart of Accounts from scratch, I get it.
That is one of the reasons the 10-Minute Bookkeeper includes a prebuilt setup for handmade business owners. It already includes the main bookkeeping categories most makers need, including income, Cost of Goods Sold, expenses, other income and other expenses, sales tax collected, owner contributions and draws, and tax money to set aside.
There is also a separate Asset tracking spreadsheet, which helps you keep track of what your business owns without making your bookkeeping spreadsheet harder to manage.
It is designed to help you skip the blank-page problem and start with a setup that actually makes sense.
Do you need a huge Chart of Accounts?
Nope.
A lot of handmade business owners assume they need a million detailed categories right away, and that is usually not true. In fact, too many accounts can make your bookkeeping harder to manage and harder to understand.
You want enough detail to be useful, but not so much detail that entering transactions becomes a pain in the ass.
For example, it may be useful to break out:
- Etsy sales
- craft fair sales
- wholesale sales
But it may not be useful to create seventeen different categories for every tiny kind of supply unless there is a real reason you need that level of detail.
A good Chart of Accounts should support your business, not make your bookkeeping more annoying.
What if you use bookkeeping software?
If you are using bookkeeping software, part of the Chart of Accounts may already be built in for you.
That can be helpful, but it also means you do not want to blindly accept every default category and hope for the best. A generic Chart of Accounts does not always reflect how a handmade business actually works.
You may need to:
- rename accounts
- remove accounts you do not use
- add categories that fit your business better
- make sure things like inventory, sales tax, and product-related costs are being handled properly
Software can make the system easier to manage, but it still helps to understand what the categories mean.
If the idea of setting this up yourself feels overwhelming, the 10-Minute Bookkeeper includes a prebuilt Chart of Accounts for handmade business owners so you are not starting from a blank spreadsheet.
The main thing to remember
Your Chart of Accounts is not some scary accounting document that only bookkeepers and CPAs care about.
It is just the framework that organizes your business finances so your reports can tell the truth.
When the categories are set up clearly, it becomes easier to see:
- what you own
- what you owe
- what you earned
- what it cost you
- where your money is actually going
And that is exactly why this matters in a handmade business.
In the next post, we are going one step further into the Balance Sheet side of the picture and talking about Assets in plain English.
Next up: Assets – Accounting Speak for your handmade business
If you'd rather be working with yarn, fabric, paint or clay than deal with a pile of receipts or bookkeeping spreadsheets, you're in the right place.
I help you get a handle on your numbers, make sense of what's coming in and going out, and actually feel confident running your business -- without accountant-speak or guilt.
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I am a coach/educator, not your bookkeeper or CPA. This information is for educational purposes, NOT financial or tax advice.
[…] Accounting software such as QuickBooks, will automatically keep track of the Sales Tax that you charge and collect from customers – if it’s set up properly – and keep track of it in an Other Current Liability account called Sales Tax Payable in the Balance Sheet section of the Chart of Accounts. […]
[…] That’s enough accounting speak for your handmade business for this week – next week we’ll talk about the Chart of Accounts. […]