Chart of Accounts & Financial Reporting

What is the Chart of Accounts?

GL account structure

Each GL account has these key properties:

Field	Purpose	Example
No.	Account number (drives sort order)	1100
Name	Descriptive name	Cash in Bank
Income/Balance	Income Statement or Balance Sheet	Balance Sheet
Account Type	Controls behaviour	Posting, Heading, Total, Begin-Total, End-Total
Account Category	Financial reporting classification	Assets
Account Subcategory	Finer classification	Cash
Direct Posting	Can users post directly to this account?	Yes/No
Gen. Posting Type	Sale, Purchase, or blank	(used with posting groups)

Account types explained

GL account types

Type	Can Post?	Purpose	Example
Posting	Yes	Regular account that holds transaction data	1100 Cash in Bank
Heading	No	Section header for visual grouping	1000 CURRENT ASSETS
Total	No	Shows sum of a defined range	1999 TOTAL CURRENT ASSETS
Begin-Total	No	Marks the start of a totalling range	1000 Begin Current Assets
End-Total	No	Marks the end and calculates the total	1999 End Current Assets

Indent accounts under headings to create a visual hierarchy. The chart should be readable at a glance, even with 100+ accounts.

Income/Balance classification

Every GL account is either:

• Income Statement — Revenue and expenses (resets to zero at year-end via Close Income Statement)
• Balance Sheet — Assets, liabilities, and equity (carry forward into the next year)

This is fundamental. When Olivia asks “Why doesn’t my trial balance from last year match?”, the answer is often that income statement accounts were zeroed out by the year-end close, and the net result moved to Retained Earnings.

Account categories and subcategories

Account categories classify GL accounts for financial reporting. They map to the standard financial statement structure:

Category	What It Represents	Financial Statement
Assets	What the company owns	Balance Sheet
Liabilities	What the company owes	Balance Sheet
Equity	Owner’s stake (assets minus liabilities)	Balance Sheet
Income	Revenue earned	Income Statement
Cost of Goods Sold	Direct costs of goods sold	Income Statement
Expense	Operating expenses	Income Statement

Subcategories

Each category has subcategories that provide finer detail:

Category	Subcategory Examples
Assets	Cash, Accounts Receivable, Inventory, Prepaid Expenses, Fixed Assets
Liabilities	Current Liabilities, Payables, Long-term Liabilities, Tax Liabilities
Equity	Common Stock, Retained Earnings
Income	Sales Revenue, Service Revenue, Interest Income
COGS	Materials, Labour, Manufacturing Overhead
Expense	Rent, Salaries, Utilities, Depreciation, Marketing

Why categories matter

Categories power the Account Schedule (financial reporting) system:

• Balance Sheet report pulls accounts by category (Assets, Liabilities, Equity)
• Income Statement pulls by category (Income, COGS, Expense)
• No need to manually maintain formulas — add a new GL account with the right category and it automatically appears in reports

💡 Exam tip: Categories vs account ranges

Business Central supports two reporting approaches:

• Category-based — reports sum accounts by their assigned category/subcategory (recommended, automatic)
• Range-based — reports sum accounts by number ranges (e.g., 1000..1999 = Assets) (legacy, manual)

The exam favours the category-based approach. When asked about “preparing financial reporting with account categories,” this is the answer — assign categories to accounts, and the built-in reports aggregate automatically.

Financial reporting (Account Schedules)

Financial Reports (formerly Account Schedules) are Business Central’s tool for building custom financial statements.

Components of a financial report

Component	What It Defines	Example
Row Definition	What to show (which accounts/categories)	Revenue, COGS, Gross Profit, Expenses, Net Income
Column Definition	How to show it (periods, comparisons)	Actual, Budget, Variance, Prior Year
Financial Report	Combines row + column definitions	P&L Report: Actual vs Budget for Q1 2026

Row definition elements

Row Type	Source	Example
GL Account	Specific account(s)	4100..4199 (all revenue accounts)
Account Category	Sum of a category	Income (sums all accounts with Income category)
Formula	Calculated	Row 1 - Row 2 = Gross Profit
Total	Sum of rows	Total Revenue + Total Other Income

Building a simple Income Statement

Olivia creates a financial report:

Row Definition:

1. Revenue (Account Category: Income) — sum of all income accounts
2. Cost of Goods Sold (Account Category: COGS)
3. Gross Profit (Formula: Row 1 - Row 2)
4. Operating Expenses (Account Category: Expense)
5. Net Income (Formula: Row 3 - Row 4)

Column Definition:

• Column A: Net Change (current period)
• Column B: Net Change (same period last year)
• Column C: Variance (A - B)
• Column D: Variance % ((A - B) / B * 100)

The power of categories: when Olivia adds a new revenue account “Consulting Revenue” and assigns it the Income category, it automatically appears in the Revenue row of every financial report. No report maintenance needed.

Question

What's the difference between a Posting and a Heading account type?

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Answer

Posting accounts hold actual transaction data (can be posted to). Heading accounts are visual labels used to group and organise accounts in the chart — they can't be posted to.

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Question

What are account categories used for?

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Answer

They classify GL accounts for automatic financial reporting. Assign a category (Assets, Income, Expense, etc.) to each account, and financial reports aggregate by category instead of requiring manual account range maintenance.

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Question

What are the three components of a Financial Report?

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Answer

Row Definition (what accounts/categories to show), Column Definition (what periods/calculations to display), and the Financial Report itself (which combines a row and column definition).

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Question

What happens to Income Statement accounts at year-end?

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Answer

They are reset to zero by the Close Income Statement batch job. The net result (profit or loss) is transferred to a Retained Earnings account on the Balance Sheet. Balance Sheet accounts carry forward.

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Knowledge check

Knowledge Check

Olivia adds a new GL account '4350 - Consulting Revenue' to the chart of accounts. She assigns it the account category 'Income' and subcategory 'Service Revenue'. What happens to her existing financial reports?

ANothing — she must manually add account 4350 to each report's row definitionBReports that use account category 'Income' automatically include the new account, and it shows zero until transactions are postedCThe reports automatically include the account but only after the next report refreshDReports only include new accounts after the Close Year batch job runs

Check Answer

Knowledge Check

Priya is setting up the chart of accounts for a new client. She creates account 2100 'Accounts Payable' as a Balance Sheet account with Direct Posting = No. Why would she disable direct posting?

ATo prevent users from posting to it at all — it should be read-onlyBBecause AP entries should only come through vendor transactions (purchase invoices, payments), not direct GL journal entriesCBecause balance sheet accounts can't have direct posting enabledDTo save storage space — direct posting accounts use more database resources

Check Answer

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Next up: You have GL accounts — but how does Business Central know WHICH GL account to use when posting a sales invoice or purchase order? That’s the job of posting groups.