Chart of accounts

What is a chart of accounts?

A chart of accounts (COA) is the master list of all the accounts a business uses to record its financial transactions in the general ledger. Each account in the chart of accounts has a unique code and name (for example, 6000 - Wages - Hospitality Casual), making it easy to classify income, expenses, assets, liabilities, and equity.

In simple terms, your chart of accounts is the index of your financial system. It's how you tell your accounting software, "these are the buckets we use to track where money comes from and where it goes."

For payroll and workforce management, the chart of accounts is what link your pay runs, superannuation, and leave liabilities to the right lines in your financial reports.

How the chart of accounts works in practice

Most Australian businesses structure their chart of accounts into major groups such as:

• Assets: bank accounts, trade debtors, equipment.
• Liabilities: PAYG withholding payable, superannuation payable, loans.
• Equity: owner's capital, retained earnings.
• Income: sales, service revenue, other income.
• Expenses: wages, super, leave, rent, utilities, software, etc.

Within expenses, payroll often takes up multiple accounts so you can see where labour costs really sit, for example:

• Wages - Salaried staff
• Wages - Casual staff
• Superannuation expense
• Leave expense / leave accruals
• Payroll tax
• WorkCover / workers' compensation

When your payroll (like Microkeeper) exports payroll journal entries, each pay category and on-cost is mapped to one or more of these COA accounts. That's how your profit and loss (P&L) ends up with tidy, accurate wage and super lines of one big "Payroll" blob.

Why the chart of accounts matters for payroll and HR

A well-designed chart of accounts makes payroll data:

• Visible: you can see wage spend by department, cost centre, award or location.
• Accurate: super, PAYG, leave and on-costs hit the correct accounts.
• Auditable: you can trace totals from payroll reports to the general ledger and on to end-of-year financials and tax returns.
• Useful: finance, operations and HR can all rely on the same numbers to make decisions.

For workforce-heavy businesses (hospitality, retail, manufacturing, healthcare, agriculture, etc.), labour is one of the biggest expenses. If your chart of accounts is messy, it becomes harder to:

• Understand wage costs by site or brand.
• Compare rostered labour vs actual labour.
• Budget accurately for headcount and overtime.
• Prove compliance when you're audited or reviewed.

Key components of a good chart of accounts

A strong chart of accounts typically has:

Clear structure

Logical ranges for assets, liabilities, income and expenses (e.g. 1000s for assets, 2000s for liabilities, 4000s for income, 6000s for expenses).

Dedicated payroll sections

Separate accounts for:

• Base wages and salaries
• Overtime / penalty rates (if you want visibility)
• Superannuation expense
• Leave expense and/or leave accruals
• Payroll tax and WorkCover
• Any regular allowances or on-costs

Cost-centre or location detail

If you report by venue, site, cost centre or department, the chart of accounts (and/or tracking categories in your accounting system) should support that.

Consistent naming

Account names that make sense to both accountants and non-accountants, for example, "Wages - Front of house" instead if "6001 - Wages A".

Chart of acounts and payroll integrations

Modern payroll platforms, including Microkeeper, use the chart of accounts to automate posting of payroll data into accounting systems like Xero, MYOB and QuickBooks.

Typically this involves:

• GL mapping: each pay category (ordinary time, overtime, allowances), deduction, tax and super item is mapped to a specific account in your chart of accounts.
• Dimensional tracking: wage costs can be split by location, department or job, so you can see labour costs wherever you need them in the P&L.
• Automated exports: after each pay run, a summary journal is pushed or exported straight to the general ledger, reducing manual data entry.
• Cleaner reconciliations: because the mapping is consistent, it's easier to reconcile payroll reports, bank statements and reconciliation of wages.

Example: payroll in the chart of accounts

Here's asimplified example of how payroll might be represented in the chart of accounts:

• 6000 - Wages - Salaried staff
• 6010 - Wages - Casual staff
• 6020 - Overtime and penalties
• 6100 - Superannuation expense
• 6110 - Payroll tax
• 6120 - Workers' compensation insurance
• 6200 - Leave expense / leave accruals

That way, your P&L clearly separates base wages, overtime, super and other on-costs.

Best practices when setting up your chartof accounts

To get the most from your chart of accounts in a payroll context:

• Involve your accountant or bookkeeper
  Make sure the structure supports BAS, tax and end-of-year reporting.
• Plan for integration from day one
  Decide how you want payroll costs grouped before you map anything in your payroll or accounting software.
• Avoid over-complication
  Too many almost-identical accounts make reporting harder, not easier. Only create extra accounts when you'll actually use the separation.
• Document the mapping
  Keep a simple mapping sheet that shows which pay categories go to which accounts. This helps when your team changes or you add new pay items.
• Review annually
  As your business grows, check that the chart of accounts still reflects how you wantto see labour costs (for example, new venues or cost centres).

Common mistakes to avoid

Some frequent pitfalls:

• Using one "Wages" account for everything
  This hides useful insights on roles, locations or awards.
• Mixing expense and liability accounts
  For example, posting super contributions to a superannuation liability account instead of a superannuation expense account.
• Not updating mappings when payroll changes
  Adding new pay categories or allowances but forgetting to map them to the chart of accounts.
• Inconistent naming
  Different names for smiliar accounts across entities or systems, making consolidation harder.

FAQs about the chart of accounts

Do small businesses really need of a chart of accounts?

Yes. Even very small businesses benefit from a simple chart of accounts. It ensures wages, super, tax and other expenses are recorded consistently and make sense at BAS and tax time.

Who should set up orchange the chart of accounts?

Ideally, your accountant or bookkeeper should design and approve the structure, in consultation with payroll and operations. Payroll teams then map pay items against that structure inside systems like Microkeeper.

How does the chart of accounts affect my payroll software?

The chart of accounts doesn't change how employees are paid, but it does control how payroll appears in your financial statements. Good mapping means accurate P&Ls, easier audits and clearer labour insights; poor mapping means extra rework for finance.