Chart of Accounts Template: Build Yours From Scratch (Free Excel)

Whatever the size of your business, the first accounting document you build at startup is not the balance sheet or the income statement: it is the Chart of Accounts. It is the map of every riyal that enters and leaves your business, and the foundation on which every financial statement, tax return, zakat declaration, and even bank financing decision is built. A business with a poor chart of accounts produces misleading reports no matter how advanced its accounting system is, and a business with a well structured chart of accounts issues reliable financial statements even with the simplest tools.

In this practical guide we build a chart of accounts from scratch to live operation: what it is, why it is the cornerstone of any accounting system, the five main categories, the hierarchical numbering system, parent and child accounts, flexibility and scalability, alignment with IFRS and the Saudi standards, ready templates for retail, restaurants, services, contracting, and manufacturing, cost centers and management accounting, when to amend it, common mistakes, and how Qoyod turns all of this into a living accounting system that runs on its own.

What is a chart of accounts?

A chart of accounts is a detailed list of every account a business uses to record its financial transactions. Each account has: a name, a number (code), a type (asset, liability, equity, revenue, expense), and a level within the hierarchy. When recording any double entry, both sides of the entry are picked from the chart, never from outside it. For this reason, the accuracy and depth of the chart directly determine the quality of every report that follows.

Think of the chart of accounts as a book index: you cannot read a 500 page book without an index, and you cannot manage a business with thousands of monthly transactions without a tight chart of accounts. The difference between a good index and a bad one shows up when searching for specific information, and the difference between two charts of accounts shows up when asking an operational question: how much did we spend on digital marketing in Q2? What is the profit margin of the Riyadh branch versus Jeddah? How much is the accounts receivable that has been outstanding for more than 90 days?

Why is the chart of accounts the cornerstone?

Because it serves four functions at once in a single document:

• Unifies the accounting language inside the business: the employee booking a sales invoice and the accountant closing the month use the same accounts with the same codes. No improvisation, no personal variation.
• Produces financial statements automatically: rolling up balances by main category generates the balance sheet and income statement at the click of a button, provided the accounts are accurately classified.
• Supports decision making: detailed child accounts (such as “Google Ads” separate from “social media ads”) give management a clear view of every cost line.
• Tax and zakat compliance: the Zakat, Tax and Customs Authority (ZATCA) requires clear breakdowns of revenue and expenses in its filings. A well structured chart of accounts turns return preparation into hours instead of days.

For the theoretical foundation of how accounts affect the sides of a journal entry, you can review the golden rule of debit and credit, which explains how account type ties to the nature of increases and decreases.

The main classification: the five categories everything revolves around

Every account in the chart sits under one of five main categories. These categories are not a design choice, they flow directly from the basic accounting equation: Assets = Liabilities + Equity, with revenue and expenses added as temporary movements that close to equity at period end.

1. Assets, code 1xxxx

Everything the business owns that has economic value. They split into two large sub groups:

• Current assets: convert to cash within 12 months: cash on hand, bank balances, accounts receivable (customers), inventory, prepaid expenses.
• Non current assets: stay more than 12 months: land, buildings, vehicles, furniture, equipment, intangible assets (software licenses, patents), and long term investments.

Assets are debit by nature, meaning they increase with a debit and decrease with a credit. Every fixed asset needs a child account for its accumulated depreciation as a contra account with a credit nature.

2. Liabilities, code 2xxxx

Everything the business owes to third parties. They also split into:

• Current liabilities: settled within 12 months: suppliers, accrued payroll, VAT payable, zakat payable, GOSI contribution payable, short term loans.
• Non current liabilities: settled after 12 months: long term bank loans, accrued end of service benefits, lease liabilities under IFRS 16.

Liabilities are credit by nature, meaning they increase with a credit and decrease with a debit. When settling a liability, we debit the liability and credit cash.

3. Equity, code 3xxxx

What remains of assets after subtracting liabilities, i.e. the owners’ net interest in the business. It includes: paid in capital, statutory reserves, retained earnings, partners’ shares, current year profit or loss.

In a small business owned by one person, two parent accounts are enough: capital + owner’s current account. In multi partner businesses, you need a separate account for each partner. In closed joint stock companies, you need deeper detail covering share premium, voluntary reserve, and treasury shares.

4. Revenue, code 4xxxx

Everything the business earns from its primary and secondary activities. Unlike assets and liabilities, revenue accounts are temporary and close at the end of every financial period to retained earnings. Good revenue detail is what separates an income statement that explains itself from one that compresses the entire business into a single line.

Examples: sales revenue, service revenue, commissions, rent received, gains on sale of assets, interest earned, favorable adjustments, supplier early payment discounts.

5. Expenses, code 5xxxx

Everything the business spends to generate revenue. Like revenue, expenses are temporary accounts. To get an accurate profit margin at the product or service level, this section is usually split into three groups:

• Cost of sales / cost of revenue: directly tied to delivering the product or service: cost of goods sold, direct production labor, raw materials. To understand this line accurately, the cost of goods sold guide helps.
• Operating expenses: tied to running the business without being a direct part of product cost: administrative salaries, rent, marketing, software subscriptions, electricity, maintenance.
• Other expenses: outside the main activity: loan interest, bank fees, losses on sale of assets, negative FX differences, fines and penalties.

This three way split is not cosmetic, it lets the income statement reveal three layers of profit: gross profit (revenue, cost of revenue), operating profit (gross, operating), and net profit (operating ± other, zakat/tax).

The hierarchical numbering system: the code language your account tree speaks

Hierarchical numbering is not organizational luxury, it is the technical mechanism that lets the accounting system automatically roll up balances from the operational level to the main level. Any movement on a child account flows up automatically into the balances of parent accounts, all the way to the balance sheet and income statement.

The five usual levels

1. Level 1: the main category with a single digit (1 to 5). This is the highest aggregation level, and no entries are recorded directly on it. Example: 1 = Assets.
2. Level 2: the sub group with two digits. Also a pure aggregation account. Example: 11 = Current assets, 12 = Non current assets.
3. Level 3: the parent account with three digits. This is where practical detail begins. Example: 111 = Cash and cash equivalents, 112 = Accounts receivable, 113 = Inventory.
4. Level 4: the child account with four digits. More detail inside the parent. Example: 1111 = Cash boxes, 1112 = Bank accounts, 1113 = Checks under collection.
5. Level 5: the operational account with five digits. The smallest unit for direct posting. Example: 11121 = Al Rajhi account, main branch; 11122 = Al Ahli account, Jeddah branch.

Alternative numbering patterns

The most common pattern in Saudi businesses is decimal numbering (3 to 5 full digits). But there are other patterns some accountants use:

• Dotted numbering: such as 1.1.1.1 instead of 1111. Visually clearer in Excel documents but heavier on the system.
• Compound numbering: such as 1100-01, where the first segment separates chapters and the second separates child accounts. Useful in multi branch businesses.
• Alphanumeric numbering: rare in Arab businesses because it complicates sorting and confuses users.

Practical recommendation: start with a simple decimal pattern of 4 to 5 digits. This is enough even if the business grows 10x. Leave gaps between codes (101, 105, 110 instead of 101, 102, 103) to make later additions easy without renumbering.

The difference between parent and child accounts

This distinction confuses many new accountants, even though it is simple:

• Parent (aggregating) account: no entries are posted directly to it. Its sole job is to aggregate balances from its child accounts. Example: the “Banks” account (112) is an aggregating account, you cannot post a cash receipt directly to it, the entry must go to one of its children (such as “Al Rajhi bank, Riyadh”).
• Child (operational) account: this is where the daily entries are posted. Every entry must land at an operational level, not at an aggregating level.

Practical rule: as soon as an account becomes aggregating (has children), disable direct posting on it immediately in the accounting system. Otherwise balances will be distorted because some transactions were posted to the parent and some to the child, making the parent appear with a doubled amount.

Opening entries, adjusting entries, closing entries, and bank reconciliation entries all must land at the operational level. For anyone learning how entries flow between accounts up to the trial balance, the trial balance guide explains how balances aggregate from operational to aggregating accounts.

Flexibility and scalability: the chart is a living document, not a frozen list

The most failed charts of accounts in Saudi businesses are not the ones built quickly, they are the ones built complete from the start and then frozen. The chart is a living document that changes with the business, and it must be designed from day one to accept expansion without breaking its structure.

3 principles for designing a scalable chart

1. Leave gaps in numbering: if the first account is 5210 (administrative salaries) and the second is 5220 (operational salaries), you have left 9 numbers between them to add intermediate accounts later (sales salaries 5215, for example).
2. Design for your future activity: if you plan to open new branches within two years, make the numbering wide enough now for 10 branches, not just two. Changing the numbering structure later is painful because it breaks comparison reports.
3. Use cost centers instead of inflating the account tree: for “which branch?” or “which project?” detail, do not create a full copy of the chart per branch, use cost centers as a second dimension added to every entry.

The difference between expanding accounts and expanding cost centers

Suppose you own 3 branches and want to know electricity expenses for each branch. The bad way: create 3 separate accounts (Riyadh electricity, Jeddah electricity, Dammam electricity). If you later open 5 new branches, the chart bloats and becomes unreadable. The right way: a single electricity account, plus a cost center per branch. When recording any electricity invoice, you pick the account (electricity) and the cost center (Riyadh branch). You can later run a “balances by cost center” report to get everything you need without inflating the chart.

This technique is known as “multi dimensional analysis”, and it is the real difference between a primitive accounting system and an integrated management system.

Linking the chart of accounts to IFRS and the Saudi standards

Businesses operating in the Kingdom of Saudi Arabia must apply International Financial Reporting Standards (IFRS) as adopted by the Saudi Organization for Chartered and Professional Accountants (SOCPA). For small and medium businesses, the IFRS for SMEs edition applies. Both frameworks set clear conditions on how accounts are classified and presented in financial statements.

IFRS requirements that must reflect in your chart

• Current vs non current split: the balance sheet must present assets and liabilities split between current and non current. Make this split explicit in the naming of your level 2 accounts.
• Revenue under IFRS 15: revenue is recognized based on the “five performance obligations” model. Your chart needs separate accounts for “recognized revenue”, “deferred revenue”, and “contract costs”.
• Leases under IFRS 16: long term lease contracts are recorded as a right of use asset offset by a lease liability. You need accounts for both, plus a depreciation expense account and an interest expense account.
• End of service benefits under IAS 19: recorded as a long term liability and updated annually based on an actuarial study in large businesses.
• Provisions and reserves: such as allowance for doubtful debts, inventory impairment provision, litigation provision. Each has a contra account within liabilities or as a contra against assets.

Tax and zakat accounts

Your chart needs separate accounts for five tax items tied to the Zakat, Tax and Customs Authority (ZATCA):

• Output VAT, liabilities, e.g. 2210.
• Input VAT, assets, e.g. 1180.
• Zakat payable, liabilities, e.g. 2230.
• Zakat expense in the income statement, separate account under other expenses.
• Withholding tax (WHT) on payments to non residents, liabilities, e.g. 2240.

If your business is subject to income tax (in case of full or partial foreign ownership), separate accounts for current and deferred tax are added. To understand how zakat is calculated accurately and how it ties to the accounts in the chart, the zakat calculation guide helps.

Chart of accounts templates by sector

The base structure of the chart is the same across all sectors: 5 main categories within the same numbering. What changes is the detail accounts under revenue and cost of revenue, and the usual cost centers. Below is a short structure for five common sectors in the Saudi market.

1. Retail (supermarkets, stores, shops)

Revenue comes from selling stored merchandise, so the distinctive accounts focus on inventory and its movement. Key extra accounts: finished merchandise inventory (1131), POS sales (4110), online sales (4111), supplier early payment discounts (4220), cost of goods sold (5110), delivery platform commissions (5240), inventory damages and shortages (5130). For anyone running an online store, this structure intersects with the POS system for retail shops, which feeds the chart of accounts daily with register sales and return invoices.

2. Restaurants and cafes

The most important distinction here is splitting raw material inventory, work in progress inventory, and finished product inventory. Extra accounts: raw material inventory (1132), prepared material inventory (1133), dine in sales (4111), delivery sales (4112), catering sales (4113), ingredient cost (5111), direct kitchen wages (5112), food app commissions (5241), kitchen equipment depreciation (5410).

3. Services (consulting, marketing, tech)

Revenue comes from selling time and expertise, not merchandise. Inventory accounts fade out and are replaced by: accounts receivable (1121), monthly subscription revenue (4120), project revenue (4121), hourly consulting revenue (4122), operating team salaries (5210), SaaS tool subscriptions (5320), software licenses (5330). The biggest difference: cost of revenue here is mostly salaries, not materials.

4. Contracting and construction

The hardest sector to design because contracts span months and years, and revenue is recognized over the life of the contract, not at delivery. Distinctive accounts: work in progress (1140), contract receivables (1141), long term contract revenue (4130), contract costs (5121), advances from customers (2120), performance guarantees (2150), subcontractor wages (5220).

5. Manufacturing

The biggest complexity here is distinguishing three inventory stages: raw materials, work in progress, finished goods. Distinctive accounts: raw material inventory (1132), WIP inventory (1134), finished goods inventory (1135), direct production wages (5112), indirect manufacturing overhead (5113), production equipment depreciation (5411), equipment maintenance (5421). All three production costs (materials + wages + overhead) transfer at the end of the production cycle into cost of goods sold.

All these templates can be reviewed in direct applied form through the Qoyod sector pages, which connect each sector to a pre built chart of accounts, an invoice template, and ready reports.

Cost centers and management accounting

The chart of accounts alone answers “what did we spend?”, but it does not answer “where did we spend it?” or “on whose behalf?”. This is where the layer of cost centers comes in as a second dimension added to every accounting entry.

Types of cost centers

• Geographic centers: by branch: Riyadh branch, Jeddah branch, Dammam branch. They answer “what is the profitability of each branch?”.
• Functional centers: by department: marketing, development, sales, customer service. They answer “what is the cost of each department?”.
• Project centers: by projects that span a defined period: customer X app project, brand refresh project. They answer “what is the profitability of each project?”.
• Product centers: by product lines: product A, product B. They answer “what is the margin of each product?”.

Practical application

When recording any entry, the accountant picks: (1) the account from the chart of accounts, (2) the cost center from the cost center list. Example: salary of an employee working at the Jeddah branch in the sales department → cost center = “Jeddah branch / sales”. This later allows pulling a “sales department expenses at Jeddah branch in Q2” report without any manual work.

To go deeper into the logic of reading these reports and turning them into management decisions, the management accounting guide details how chart and cost center data turn into decision reports.

When do you amend the chart of accounts?

The chart is not a carved stone, but it is also not a document that changes monthly. Five cases call for an amendment:

1. New activity entering the business: if the business begins offering a service it did not previously offer (for example a retail store launches a private delivery service), it needs new revenue and expense accounts.
2. Change in the tax regime: such as a change in the VAT rate, or a new tax added to your activity. Every tax change reflects in the chart.
3. Applying a new accounting standard: when adopting IFRS 15 or 16 or a new standard, you need accounts that reflect the requirements of that standard.
4. Opening a new branch or closing one: calls for adding or deactivating a cost center, and sometimes new bank or cash accounts.
5. Merging or splitting business lines: if you decide to merge two lines that were separate, you deactivate the child revenue accounts and combine them under one account.

Safe amendment rules

• Never delete an account: if it is no longer used, just deactivate it. Deletion breaks historical comparison reports.
• Do not renumber existing accounts: changing an account code breaks its links in prior entries. Add new accounts with new numbers.
• Document every amendment: record the amendment date, reason, approval, and expected impact on statements. This documentation is requested during external audit.
• Avoid amending mid period: prefer amending at the start of the new fiscal year so it aligns with closing the accounting period and does not disrupt monthly comparison.

Common mistakes in chart of accounts design

These mistakes recur in hundreds of small and mid sized businesses in the Saudi market:

1. Merging accounts of different nature into one: such as putting “other revenue” as a single account with no detail, mixing activity allowances with gains on sale of assets with FX differences. The result: a shallow income statement that explains nothing.
2. Excessive complexity: creating a chart with 500 accounts for a 5 employee business. Every entry becomes a burden, and the chance of picking the wrong account rises. The rule: start with 50 to 80 accounts, expand gradually as needed.
3. Not separating base salary from allowances: the accountant puts all payroll costs in a single account. When calculating the GOSI contribution base or end of service benefits, it becomes impossible without manually reviewing every payroll slip.
4. Merging output and input VAT: makes reconciling the VAT return difficult. Two separate accounts are required.
5. Ignoring cost centers from day one: adding them after a year of operation means losing all analytical information for the first year.
6. Not setting up accounts for accounts receivable and doubtful debts: a customer 6 months past due should move from “current receivables” to “doubtful receivables”, with a provision booked against it. Without the split, the statements show uncollectable amounts.
7. Posting entries to aggregating accounts: a catastrophic mistake because it distorts the reading of balances in the balance sheet and is hard to detect without careful review.
8. Not deactivating unused accounts: makes the account list in the system unnecessarily long, and raises the chance of wrong selection by new users.

How Qoyod helps manage the chart of accounts

Drafting a chart of accounts on an Excel sheet is easy. Turning it into a live accounting system fed daily by hundreds of entries, generating real time financial statements, and connecting with an e invoicing platform, with the bank, and with ZATCA, is the real challenge. The Qoyod accounting platform was designed to close this gap with three integrated layers:

• A default chart of accounts ready to run: as soon as you create your account, a standard chart of accounts arrives that covers 80% of any small or mid sized business needs, aligned with IFRS as adopted by SOCPA. You can start working within minutes instead of building everything from scratch.
• Full customizability: you can add new accounts at any number, deactivate unused ones, rename any account, and define an unlimited number of cost centers. Hierarchical numbering is automatic, so as soon as you create account 1110 it belongs automatically to chapter 1 and sub group 11.
• Direct link to reports: any amendment in the chart reflects immediately in the balance sheet, income statement, and cash flow statement. No need to resync or refresh an intermediate sheet.

What Qoyod really delivers: full automation from invoice to statement. When you issue an invoice to a customer: VAT is posted automatically to account 2210, revenue is posted to account 4110, accounts receivable grows in account 1121. When the invoice is collected, the bank account grows and receivables decrease. All of this without manual entries. For more depth on how daily data turns into official financial filings, the zakat threshold guide ties chart accounts to the zakat base.

Frequently asked questions about the chart of accounts

Must the chart of accounts be unified across all Saudi businesses?

No, there is no single mandatory chart of accounts. But all businesses must issue financial statements under IFRS as adopted by SOCPA. Because the financial statements come from the chart, the chart must be compatible with these standards in terms of classification and presentation, even if it differs in detail from one business to another.

How many accounts are appropriate for a small business chart?

Between 50 and 80 operational accounts. This is enough to cover every line of the income statement and balance sheet at a reasonable level of detail. Aggregating accounts are added on top of this count and are tallied separately. Avoid starting with more than 100 accounts because managing them will become a burden.

Can I modify account codes after going live?

Technically yes, but practically it is not recommended. Changing an account code breaks the links in historical entries and comparison reports. The better way: if you want to change the classification, create a new account, move recent movements to it, and deactivate the old one instead of changing it.

What is the difference between the chart of accounts and the trial balance?

The chart of accounts is the list of accounts themselves (names, codes, types). The trial balance is a statement of balances on a specific date for each account in the chart. The chart is relatively stable, the trial balance changes every day.

How do I know my chart of accounts is correct?

Three quick indicators: (1) you can produce the balance sheet and income statement automatically without manual adjustment. (2) you can prepare the VAT return from the “tax accounts” report directly. (3) you can answer any management question (“how much did we spend on X?”) from a single report without manual calculation.

Do accounts differ between sole proprietorships and limited liability companies?

The five chapters do not differ. What differs is the equity accounts: a sole proprietorship needs one account for the owner’s capital and one for the owner’s current account. A limited liability company needs separate accounts for each partner, and sometimes statutory and voluntary reserves.

Do I need a chart of accounts if I work only in Excel?

Yes. Even if your accounting system is just an Excel file, having a unified list of accounts and their codes protects against human error and avoids duplicated classification. But the real alternative is to move from Excel to a small accounting system as soon as your business exceeds 30 monthly transactions.

Start with a chart of accounts that works from day one

The chart of accounts is not a document you write once and forget, it is the living structure through which every riyal flows in your business. Download the attached template, pre built with five hierarchical levels and aligned with IFRS, start customizing it to your sector, then move it into Qoyod to activate a full accounting cycle instead of a frozen sheet.