Updated Checked by the Tax-Services.ca editorial team How we check
To set up a chart of accounts for a Canadian small business, start with five groups (assets, liabilities, equity, income and expenses) and then split the expenses to match the lines on your tax return. For a sole proprietor that is form T2125, which has named expense lines. Build your accounts around them and year end gets easier.
What is a chart of accounts?
It’s the list of labels your bookkeeping uses. Every dollar that comes in or goes out gets filed under one label, and the reports you read at the end are just those labels added up. A good list is short enough that you use it properly and detailed enough that your accountant doesn’t have to dig.
Which accounts should you start with?
Five groups cover everything. Assets are what you own, like your bank account and equipment. Liabilities are what you owe, such as a credit card or GST/HST you’ve collected but haven’t sent in. Equity is what’s left for the owner. Income is what you earn, and expenses are what you spend.
The numbering below is a common habit, not a rule. The CRA doesn’t require any particular numbers, and your software will probably suggest its own.
| Number range | Group | Examples |
|---|---|---|
| 1000 to 1999 | Assets | Bank, receivables, equipment |
| 2000 to 2999 | Liabilities | Credit card, GST/HST payable, payroll owing |
| 3000 to 3999 | Equity | Owner’s draws, owner’s contributions |
| 4000 to 4999 | Income | Sales, service fees |
| 5000 to 9999 | Expenses | Rent, office costs, advertising |
For a one-person shop, a first list of 25 to 30 accounts is plenty: a bank account, a credit card, GST/HST payable, owner’s draws, one or two income accounts, and about fifteen expense accounts. You can always add more when a pile of transactions in one account starts hiding something. It’s much harder to merge forty accounts down later.
How should you name the expense accounts?
Borrow the CRA’s own wording. Part 4 of form T2125 lists lines such as advertising, insurance, interest and bank charges, business taxes, licences and memberships, office expenses, professional fees, rent, repairs and maintenance, salaries, wages and benefits, travel, utilities and motor vehicle expenses. There’s also a line for capital cost allowance and a catch-all line for other expenses.
If your accounts map to those lines, you can copy the totals across and you’re done. If they don’t, you’ll spend an evening sorting a year of transactions by hand. That’s a bad way to find out.
Corporations file a different return, and we didn’t check its line layout here. The same idea still holds: ask your accountant which categories they need, then name your accounts to match.
What does it look like with real numbers?
Say you’re an Ontario consultant. You bill $120,000 in the year and spend $40,000 across rent, software, insurance, phone and professional fees. Your net business income is $80,000, and that figure is what goes on the tax form.
The self-employed tax calculator puts income tax at $13,233.57 and CPP at $8,892.90 for both halves, so $22,126.47 in all, leaving $57,873.53. If you’d lumped $10,000 of spending into “other”, nothing changes in the maths, but you’d have no way to explain it in an audit. If you charge sales tax, use the GST and PST calculator to check a few invoices against your books.
What if your accounts are already a mess?
Don’t start over in the middle of a year. Pick a clean date, usually the first day of a new fiscal year, and make the changes then. Until that date, rename accounts where the new name is clearer and merge the near duplicates (“Office supplies” and “Supplies office”). Leave accounts with history in place and stop using the ones you don’t want, so old reports still add up. Write a one-page note of what you changed and when. Future you, or your accountant, will be grateful.
Mistakes that make a chart useless
Too many accounts is the first. Forty expense lines for a one-person shop means you’ll guess which to use. Too few is the opposite problem: a single “expenses” account tells you nothing.
Next, a giant “miscellaneous” bucket. Keep it small, and review it every quarter. Personal spending run through the business is another; use the equity draws account for money you take out, not an expense line. And don’t rename accounts mid-year without noting it, because your reports won’t compare cleanly.
The CRA says your records have to be reliable and complete and include what you need to meet your tax obligations. Generally you keep them for six years from the end of the last tax year they relate to, and its page on keeping records explains where and for how long. A tidy chart of accounts is what makes that pile readable. If you have staff, add payroll accounts and check your figures with the payroll remittance calculator.
Where the numbers come from
The expense line names come from the Canada Revenue Agency‘s guidance on form T2125, and the record rules from its pages on keeping records. We rechecked the expense line names in November 2026. The example figures come from this site’s calculator, which uses 2026 rates and leaves out GST/HST, EI and expenses.
Frequently asked questions
How many accounts does a small business need?
For a one person shop, 25 to 30 accounts is plenty: a bank account, a credit card, GST/HST payable, owner's draws, one or two income accounts and about fifteen expense accounts. Add more only when a pile of transactions in one account starts hiding something, because merging forty accounts later is much harder.
How should I name the expense accounts?
Borrow the CRA's wording from the expenses section of form T2125: advertising, insurance, interest and bank charges, business taxes, licences and memberships, office expenses, professional fees, rent, repairs and maintenance, salaries and wages, travel, utilities and motor vehicle expenses. Then you can copy totals across at year end.
Does the CRA require specific account numbers?
No. The numbering from 1000 for assets to 5000 and up for expenses is a common habit, not a rule, and your software will probably suggest its own. What the CRA requires is reliable, complete records, which you generally keep for six years from the end of the last tax year they relate to.
How much do I keep on $80,000 of net income?
For an Ontario consultant who bills $120,000 and spends $40,000, net business income is $80,000. Our self-employed calculator puts income tax at $13,233.57 and CPP at $8,892.90 for both halves, $22,126.47 in all, leaving $57,873.53. It leaves out EI, GST/HST and business expenses beyond the net figure.
What if my accounts are already a mess?
Do not start over mid year. Pick a clean date, usually the first day of a new fiscal year. Until then, rename accounts where the new name is clearer and merge near duplicates. Leave accounts with history in place and stop using the ones you do not want, then write a one page note of what changed and when.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST