Chart of Accounts 101: What Accounts Every SaaS Startup Actually Needs In 2026

2026-01-15

A chart of accounts (COA) is the backbone of your accounting system. If your COA is too simple, your financials won’t answer basic questions. If it’s too complex, close turns into a monthly cleanup project.

This guide lays out the accounts most SaaS startups actually need, plus a few optional accounts that make sense once you hit real scale (usage billing, multi-entity, audit, sales tax, R&D credits).

Last verified: Jan 2026

What a Chart of Accounts Is

A chart of accounts is the list of accounts your general ledger uses to categorize transactions. It’s how you turn raw bank and card activity into financial statements.

A good COA does three things:

supports accurate financial statements
makes month-end close faster
maps cleanly to tax filings and audit requests

The IRS also emphasizes that good recordkeeping helps you prepare financial statements, identify income sources, track deductible expenses, and support items on your tax return: IRS recordkeeping overview.

COA Design Rules That Keep You Out of Trouble

Keep it minimal, then add accounts only when you need them

Start with the smallest COA that produces useful reporting. Add accounts when one of these is true:

you need to track a category separately for decision-making (compute vs payroll vs contractors)
it has different tax treatment (meals, fixed assets, sales tax)
it gets asked for in diligence or audit (deferred revenue, AR, accrued expenses)

Separate what is “timing” versus “classification”

Many accounting issues are not about what it is, but when it hits the P&L:

prepaid expenses vs expense
accrued expenses vs paid expenses
deferred revenue vs revenue

A COA should make timing accounts obvious, so you can reconcile them monthly.

Build for your billing model

A pure subscription business can run a simple revenue structure. The moment you have:

usage charges
annual prepay
credits
refunds and chargebacks you need a few extra accounts to keep revenue and AR accurate.

Revenue recognition under ASC 606 is a bigger topic, but the core principle (recognize revenue to depict transfer of promised goods/services) is the foundation for how you should structure revenue and deferred revenue accounts: FASB Topic 606 (ASC 606) update PDF.

The Minimum COA Every SaaS Startup Needs

This is the baseline set that works for most early-stage SaaS startups and produces investor-usable financials.

Balance Sheet Accounts

Assets

Cash

Cash
Cash equivalents (optional)

Accounts receivable and contract balances

Accounts receivable
Allowance for doubtful accounts (optional; becomes useful when you have meaningful AR)
Contract assets (optional; if you have ASC 606 timing differences)

Prepaids and other current assets

Prepaid expenses
Deferred offering costs (only if relevant)
Deposits (rent/security deposits)

Fixed assets

Computer equipment
Furniture and fixtures (optional)
Leasehold improvements (optional)
Accumulated depreciation

Other assets (as needed)

Capitalized software development costs (only if you are capitalizing eligible costs)
Deferred contract costs (optional; if you capitalize certain sales commissions)

Liabilities

Accounts payable and accruals

Accounts payable
Accrued expenses

Payroll and payroll taxes

Wages payable
Payroll taxes payable
Employee benefits payable (optional)

Customer-related liabilities

Deferred revenue
Refund liability (optional, but useful if refunds are common)

Tax-related liabilities

Sales tax payable (only if you collect and remit)
Income tax payable (usually minimal for early-stage, but still possible)
Franchise tax payable (state-specific)

Debt and other

Credit card payable (if you prefer to track as a liability instead of netting into cash)
Notes payable
Accrued interest payable

Equity

Common stock
Additional paid-in capital
Retained earnings
Current year earnings (system-generated)

P&L Accounts Most SaaS Startups Use

Revenue

Keep revenue categories aligned to how you sell and how you analyze growth.

A practical structure:

Subscription revenue
Usage revenue (if applicable)
Professional services revenue (if applicable)

Contra revenue and adjustments (important)

Refunds
Discounts (or sales promotions)

If you report gross revenue and net it with contra accounts, you can see:

how much you’re giving up in discounts
how much churn or refund behavior is impacting revenue

Cost of goods sold

COGS is the cost to deliver your product to customers. SaaS teams commonly include:

Hosting and infrastructure (production)
Third-party APIs used to deliver customer features (production)
Customer support (depends on your policy; some classify support in OpEx)
Payment processing fees (many treat as COGS if directly tied to revenue)

A common mistake is lumping everything into “software” expense. Split customer-delivery costs from internal tooling when you can.

Operating expenses

The basic operating expense categories:

Research and development
Sales and marketing
General and administrative

A practical COA uses those three buckets and then adds accounts that frequently need separate tracking:

Payroll
Contractors
Software and tools
Legal and professional fees
Recruiting
Travel
Meals (separate from travel for tax reasons)
Rent and occupancy
Insurance
Depreciation and amortization

The IRS maintains a mapping of business expense topics and resources (and notes changes to older publications): IRS guide to business expense resources.

SaaS-Specific Accounts That Are Worth Adding Early

These are the accounts that make SaaS financials easier to trust.

Deferred revenue

If you invoice annually upfront, or you collect cash before you deliver service, deferred revenue is the standard liability account you reconcile monthly.

Accounts receivable and payment processor clearing

If customers pay via card/ACH through a processor, a clearing account prevents timing confusion:

Payment processor clearing
Payment processing fees (COGS or OpEx, depending on your policy)

This is especially helpful when payouts lag invoices.

Refunds, chargebacks, and disputes

If refunds happen, separate these:

Refunds (contra revenue)
Chargebacks and disputes (either contra revenue or a dedicated expense, but be consistent)
Refund liability (balance sheet, optional, if you have predictable refund exposure)

Sales tax payable (only if you collect)

If you collect sales tax, it is not revenue. It is a liability:

Sales tax payable

This becomes critical once you start collecting in multiple states or on platforms/marketplaces.

Accounts for Usage-Based Billing and Credits

If you bill based on usage, add a few accounts so invoices and revenue tie out.

Revenue

Usage revenue

Contra revenue

Usage credits applied (optional; helps explain “why invoice was lower”)
Refunds

Liabilities

Deferred revenue (for prepaid credits sold)
Contract liability for credits (some teams separate from general deferred revenue)

Assets

Unbilled receivable (optional; if you recognize usage revenue before invoicing)

The goal is that your billing data can map to the ledger without manual reclassification each month.

Accounts for Payroll, Hiring, and Contractors

SaaS startups often overcomplicate payroll accounts. You usually want:

Payroll expense (by department)
Payroll taxes
Benefits
Contractors (by department)

If you have international contractors, you may want to split:

US contractors
International contractors

That makes 1099 season and vendor reviews simpler.

Accounts for Leases and Offices

If you have office space, equipment leases, or other leasing arrangements, your COA should support lease accounting and clean reconciliations.

At minimum:

Rent expense
Security deposits
Leasehold improvements (if you build out an office)

Lease accounting requirements are governed by ASC 842: FASB leases project page (Topic 842).

R&D Credit and How It Shows Up in Your COA

The R&D tax credit does not change how you run your COA day-to-day, but a good COA makes it easier to build the credit file because most startups’ qualified research expenses are heavily wage-based.

Practical COA implications:

keep payroll separated by department (R&D vs non-R&D)
avoid burying contractors in a generic “misc expense” account
track third-party dev work cleanly

If you claim the federal R&D credit payroll tax offset, it is tied to employer payroll taxes, but the underlying inputs still come from wage and contractor tracking. The IRS overview is here: IRS R&D credit against payroll tax for small businesses.

If you want to centralize your GL, AP, AR, tax, compliance, bookkeeping, R&D credit workflow, and sales tax tracking in one place, Afternoon is building towards an ERP-style platform that covers those functions.

What You Probably Don’t Need Yet

A COA gets messy when you add accounts just because you can. Early-stage teams usually do not need:

dozens of software sub-accounts by vendor (use vendor reporting instead)
separate accounts for every marketing channel (use classes or tags, or a separate KPI model)
overly granular travel sub-accounts
separate deferred revenue accounts for every product line (unless pricing is meaningfully different)

If you need analysis, use dimensions (classes, departments, locations, projects) instead of adding 50 accounts.

COA Naming and Numbering That Scales

A simple numbering scheme that scales:

Assets: 1000–1999
Liabilities: 2000–2999
Equity: 3000–3999
Revenue: 4000–4999
COGS: 5000–5999
Operating expenses: 6000–7999
Other income/expense: 8000–8999

Naming rules that help:

use consistent prefixes (Revenue:, COGS:, G&A:, R&D:, S&M:)
reserve “Other” accounts for truly rare items, then review quarterly

Month-End Close: What You Reconcile with This COA

If your COA is set up well, close becomes a checklist of reconciliations:

Cash

tie bank balances to cash accounts

AR and billing

tie AR aging to accounts receivable
confirm billing cutoffs (invoices issued vs revenue recognized)

Deferred revenue

tie deferred revenue to billing schedules and revenue recognition model

Accrued expenses

ensure major invoices and payroll liabilities are captured in the right period

Sales tax payable (if collecting)

tie collected tax to filings/remittances

This is why the COA matters: it defines what you can reconcile.

Summary

Topic	Details
What a COA is	The account structure your general ledger uses to categorize transactions
Goal	Clean financial statements, faster close, easier taxes and diligence
Minimum accounts	Cash, AR, prepaids, fixed assets, AP, accruals, payroll liabilities, deferred revenue, basic revenue/COGS/OpEx
SaaS must-haves	Deferred revenue, refunds/discounts, payment processing clearing, hosting/infra COGS
Add for usage billing	Usage revenue, credits/discounts, prepaid liabilities, optional unbilled receivable
Add for sales tax	Sales tax payable (not revenue)
R&D credit tie-in	COA helps by keeping wage and contractor costs cleanly tracked for documentation