Creating a Scalable Chart of Accounts for an AI Startup

Creating a Chart of Accounts (CoA) for an AI startup begins with the same foundational principles as any business: categorizing assets, liabilities, equity, income, and expenses. However, the innovative and dynamic nature of AI startups brings unique challenges that require careful planning. In this guide, I’ll share best practices and key considerations to help you design a CoA that’s practical, scalable, and insightful.

Why Your Chart of Accounts Matters

Your financials should tell a narrative that reflects your company’s operational performance, strategic initiatives, and overall health. When I build a CoA, I’m always thinking about who will use it—founders, investors, or other stakeholders—and what decisions it needs to support.

For example, your CoA should help you compare actual financial performance against your budget, prepare for investor pitches by facilitating calculations of key metrics like Monthly Recurring Revenue (MRR) and gross margins, and streamline tax preparation by clearly categorizing deductible expenses. A well-structured CoA empowers your team to make smarter decisions and stay aligned with strategic goals.

1. Finding the Right Level of Granularity

One of the biggest challenges I see is finding the right balance between simplicity and detail. For instance, I recommend detailing payroll expenses into subaccounts like salaries, benefits, taxes, as well as bonuses and commissions. This level of granularity offers valuable insights into headcount costs, a major expense for most startups, while also simplifying the reconciliation of these costs. Another significant category for startups to consider breaking out is R&D related costs. For example, if your startup employs R&D contractors, having a dedicated subcategory can simplify reporting and ensure you’re taking full advantage of R&D tax credits.

That said, over-segmentation creates clutter. My rule of thumb: ask yourself whether a new subaccount will provide meaningful insights or just add noise. Keep it streamlined but effective.

…ask yourself whether a new subaccount will provide meaningful insights or just add noise.

2. Tracking Revenue and Costs the Right Way

Many startups overlook the importance of properly tracking revenue and cost of revenue, but these are critical to understanding numerous key metrics, including your business’s gross margins. Differentiating between revenue streams, like recurring subscription revenue versus one-time project revenue, can save you countless hours down the line. I always recommend categorizing these streams early—it makes internal planning and external reporting far smoother.

The same goes for costs of revenue. When building out this category, you’ll want to identify the costs that directly relate to production or delivery of the products or services. For AI startups, this often includes allocation of hosting, infrastructure, direct payroll costs, and tools that directly impact revenue generation. Companies with more than one revenue stream may also want to consider categorizing these costs by stream to allow for better analysis of performance by line of business. By breaking out cost of revenue from operating expenses, you’ll paint a more accurate picture of profitability and support more efficient financial analysis and fundraising efforts.

3. Planning for Audits and Compliance

If you expect to undergo a GAAP audit in the future, I strongly recommend adopting accrual accounting early. Preparing your CoA with audits in mind promotes consistency in the financials and can save you significant time and effort later, especially when you’re raising funds or preparing for an acquisition. Accrual accounting is imperative to align your financials with auditor expectations, and consistent financials across periods reduces the likelihood of misstatements or need for additional disclosures.

4. Structuring Departmental Accounting

Another critical consideration is if, and how, to structure departmental accounting. If your company is at the stage where it needs to track budgets across multiple departments, organizing the CoA with these departments in mind can streamline that process. An alternative to using departmental granularity in the CoA includes the utilization of class or department functionality in QuickBooks Online, which instead would present the categories in a vertical structure on the Income Statement. Some startups prefer horizontal structures with separate accounts for sales and marketing, R&D, and general administration, while others use vertical structures that break down each department’s expenses.

In my experience, the vertical structure works better for organizations who do not yet need an ultra-granular chart of accounts, but would still like insights to departmental spend. The horizontal structure makes sense for companies whose stakeholders have a greater need for detailed financials. I always encourage founders to think about their long-term needs before committing to a structure.

5. Making the Most of Tools and Best Practices

I’m a big fan of using four- or five-digit account numbers. Utilization of account numbers makes for a more organized CoA, reduces bookkeeping errors, and allows for streamlined traceability during audits.

Many accounting-adjacent softwares (payroll, expense management, etc.) also allow for integration to your ERP, and a well structured CoA can maximize the effectiveness of these integrations. By utilizing the integration functionality, your organization can automate data entry, reduce human error, and help ensure your financial data stays accurate and actionable.

An Example Chart of Accounts for an AI Startup

Here’s a sample CoA structure I often use as a starting point. It includes tabs for Balance Sheet and Profit & Loss (P&L), tailored to the needs of an AI startup.

⬇️ Download as a spreadsheet

ASSETS

• Current Assets
  • Bank Accounts
  • 10100 [Bank Name 1] – (****)
  • 10200 [Bank Name 2] – (****)
  • 10300 [Bank Name 3] – (****)
  • 10400 Stripe Clearing Account
• Receivables
  • 12000 Accounts Receivable (A/R)
  • 12100 Allowance for Doubtful Accounts
• Other Current Assets
  • 13999 Undeposited Funds
  • 14000 Due From Subsidiary
  • 15100 Prepaid Expenses
  • 15200 Accrued Revenue
  • 15300 Interest Receivable
  • 15400 Other Receivable
• Fixed Assets
  • 17100 Computers & Equipment
    • 17110 A/D Computers & Equipment
  • 17200 Furniture & Fixtures
    • 17210 A/D Furniture & Fixtures
  • 17300 Leasehold Improvements
    • 17310 A/A Leasehold Improvements
  • Intangible Assets
    • 18100 Trademark Costs
      • 18110 A/A Trademark Costs
    • 18200 Patent Costs
      • 18210 A/A Patent Costs

LIABILITIES

• Current Liabilities
  • 21000 [Creditor Name]
  • 22000 Accounts Payable (A/P)
  • Other Current Liabilities
    • 23000 Due to Subsidiary
    • 24000 Accrued Expense
    • 25000 Payroll Liabilities
      • 25100 Accrued Commissions
      • 25200 Accrued Bonuses
      • 25300 401K Liability
      • 25400 Employee Benefits Payable
    • 26000 Taxes Payable
      • 26100 Sales Tax Payable
      • 26200 VAT Payable
    • 28000 Deferred Revenue
      • 28100 Deferred Subscription Revenue
      • 28200 Deferred License Revenue
      • 28300 Deferred Service Revenue
• Long Term Liabilities
  • 29100 Loan Payable
  • 29200 Accrued Interest

EQUITY

• 31000 Common Stock
• 32000 SAFE Notes
• 33000 Preferred Stock
  • 33100 Preferred Stock – Seed
    • 33150 Issuance Costs – Seed
  • 33200 Preferred Stock – Series A
    • 33250 Issuance Costs – Series A
  • 39000 Retained Earnings

INCOME

• 40000 Revenue
• 40100 Subscription Revenue
• 40300 Perpetual License Revenue
• 40400 Service Revenue

COST OF GOODS SOLD

• 50000 Cost of Goods Sold
  • 50100 Customer Support & Implementation
    • 50110 Support & Implementation Wages
    • 50120 Support & Implementation Benefits
    • 50130 Support & Implementation Payroll Taxes
    • 50200 Hosting / Infrastructure
      • 50250 Hosting Credits
    • 50400 Software & Tools
    • 50500 Merchant Processing Fees

EXPENSES

• 61000 Payroll Expenses
  • 61100 Salaries & Wages
  • 61200 Commissions
  • 61300 Bonuses
  • 61400 Payroll Tax Expenses
  • 61500 Payroll Benefits
• 62000 Facility Expenses
  • 62100 Rent & Lease
  • 62200 Utilities
  • 62300 Office Equipment/Furniture < $3k
  • 62400 Office Supplies
  • 62500 Shipping
• 63000 General Business Expenses
  • 63100 Software
  • 63200 Internal Meals
  • 63300 Bank Charges & Fees
  • 63400 Insurance
  • 63500 Taxes & Licenses
  • 63600 Bad Debt Expense
• 64000 Sales and Marketing
  • 64100 Advertising & Marketing
  • 64200 Conference Fees
  • 64300 Marketing/Consulting Expense
  • 64400 PR & Branding
• 65000 Professional Services
  • 65100 Accounting & Financial Services
  • 65200 Independent Contractors
  • 65300 Legal Services
  • 65400 Other Professional Services
• 66000 Research and Development
  • 66100 R&D Travel
    • 66101 Airfare
    • 66102 Lodging
    • 66103 Ground Transportation
    • 66100 R&D Software
    • 66200 R&D Office Supplies & Equipment
  • 67000 Travel & Entertainment
    • 67100 Airfare
    • 67200 Lodging
    • 67300 Ground Transportation
    • 67400 Other Travel Expenses
    • 67500 Meals
  • 69999 Uncategorized Expense

OTHER INCOME/EXPENSES

• Other Income
  • 81000 Other Income
    • 81100 Dividend Income
    • 81200 Interest Income
    • 81400 Other Misc. Income
  • Other Expenses
    • 82000 Other Expenses
    • 82100 Amortization Expense
    • 82200 Depreciation Expense
    • 82300 Other Miscellaneous Expense
    • 82400 Corporate Taxes
    • 82500 Unrealized Gain or Loss

Growing with Your CoA

Your CoA isn’t a static document—it should evolve alongside your business. As your AI startup grows, your financial needs will become more complex. Work closely with your accountant, especially before major milestones like launching a new product, preparing for a funding round, or planning a GAAP audit. Scheduling regular reviews, particularly in the third and fourth quarters, will keep your CoA aligned with your business goals and help you stay ahead of any challenges.