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The minimal viable structure
| Section | The accounts that earn their place |
|---|---|
| Income | One per genuinely different revenue stream (2-4 max), split by what you decide on, not what you can imagine tracking |
| Cost of sales | Materials and stock, subcontractors kept separate (TPAR and contractor classification both need it), direct freight |
| Expenses | Mirror the return's categories: wages and super separately, rent, motor vehicle, insurance, phone and internet, software, professional fees, bank fees, advertising, and entertainment in its own account because it is mostly non-deductible and must be findable |
| Assets | Bank accounts as they exist, debtors, fixed assets over the write-off threshold (never expensed), the asset clearing account |
| Liabilities | Creditors, GST, PAYG withholding, super payable in its own account, loans, and the directors' loan account - the Division 7A ledger, watched rather than buried |
| Equity | Owner contributions and drawings for sole traders; share capital and retained earnings for companies |
That is roughly 30 to 40 accounts. Xero and MYOB defaults ship close to this, so the right move is pruning the defaults to your shape rather than adding to them.
The three design rules
1. One decision, one account. Add an account only when you would act differently based on its balance. Would you do anything with "office consumables" and "stationery" as separate lines? No, so make it one account. This is why job-level and customer-level detail belongs in tracking categories, not the chart: the chart is for tax and management structure, dimensions are for detail.
2. The tax-sensitive accounts are non-negotiable. Entertainment, subcontractors, super payable, the directors' loan and fixed assets exist because FBT, TPAR, super guarantee charge, Division 7A and depreciation each need their number findable in seconds. A chart without them is not simpler - it hides the exact balances that generate reviews.
3. Set GST defaults per account, then trust but verify. Each account carries a default tax rate (wages: no GST; GST-free supplies where relevant), and that does more for BAS accuracy than any amount of transaction-by-transaction diligence. The five pre-lodgment checks then catch the strays.
Frequently asked questions
What is a chart of accounts?
How many accounts should a small business have?
Should I use Xero's default chart of accounts?
What accounts do I need for tax reasons specifically?
Can I change my chart mid-year?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.