What is a chart of accounts?

The five account types

• Assets: what the company owns (cash, banks, customers, inventory, fixed assets).
• Liabilities: what the company owes (suppliers, loans, VAT payable, end-of-service provision).
• Equity: capital and retained earnings.
• Revenue: sales, service income and other income.
• Expenses: salaries, rent, cost of goods sold, administrative and marketing expenses.

Numbering and levels

The common numbering starts with assets (1), liabilities (2), equity (3), revenue (4) and expenses (5). Levels then branch: 1 Assets → 11 Current assets → 1101 Cash on hand → 110101 Head-office till. Only the leaf accounts take entries; higher accounts are totals for reporting.

A simplified example for a Saudi trading company

• 1101 Cash, 1102 Bank, 1103 Customers, 1104 Inventory, 1105 Input VAT, 1201 Furniture and equipment
• 2101 Suppliers, 2102 Output VAT, 2103 Accrued salaries, 2104 End-of-service provision
• 3101 Capital, 3102 Retained earnings
• 4101 Sales of goods, 4102 Service revenue, 4901 Other income
• 5101 Cost of goods sold, 5201 Salaries, 5202 Rent, 5203 Utilities and telecoms, 5301 Marketing

Accounts specific to the Saudi market

Do not forget two VAT accounts (input and output) so the return is built from their difference, an end-of-service provision charged monthly, an account for employee cash advances, and accounts for deposits and customer prepayments if your business takes payments in advance.

Dimensions instead of accounts

A common mistake: creating an expense account per branch and per project (Riyadh branch rent, Jeddah branch rent...). The result is a chart with hundreds of unreadable accounts. Better is one rent account, with branch, project and cost centre set as dimensions on the entry, and reports filtered by them. Modern systems, Barah Plus among them, are built this way.

Common design mistakes

• Too many accounts at the start instead of adding them when needed.
• Mixing assets and expenses (booking an equipment purchase as an expense).
• A “miscellaneous” account that swallows whatever the user cannot place.
• Reusing an old account number for a new purpose, mixing up historical reports.