This is part of our Getting Started with Xero series (Chapter 1 of the Xero tutorial hub):

• Lesson 1: Choosing the Right Xero Plan for Your Central Coast Business
• Lesson 2: Setting Up Your Xero Organisation: A Step by Step Guide
• Lesson 3: Building a Chart of Accounts for Your Trade or Service Business in Xero
• Lesson 4: Entering Opening Balances When You Switch to Xero
• Lesson 5: Getting to Know Your Xero Dashboard
• Lesson 6: Using the Xero Accounting App On the Job Site

Your chart of accounts is the list of categories every transaction gets sorted into. Get it right and your reports actually mean something. Get it wrong and everything from materials to fuel ends up lumped into one vague bucket.

1. Start with the default chart of accounts

Xero comes with a standard chart of accounts that covers the basics. For most small businesses this is a reasonable starting point rather than something to build from scratch.

2. Add accounts that match how you actually work

For a trade or service business, it is worth adding specific expense accounts for things like materials and supplies, subcontractor payments, vehicle running costs, and tools and equipment, rather than lumping them all under general expenses.

3. Consider tracking categories for job level detail

If you want to see profitability by job or by type of work, Xero tracking categories let you tag transactions without creating a whole new account for every job.

4. Do not overcomplicate it

More accounts is not always better. A chart of accounts with too many categories gets confusing fast. Aim for enough detail to be useful, not so much that entering a transaction becomes a guessing game.

If you want a second opinion on your setup, our tradie bookkeeping team reviews charts of accounts as part of getting new clients set up properly. Xero’s YouTube channel also has walkthroughs on customising your chart of accounts: watch the official Xero tutorial.