How to set up chart of accounts on Xero

intermediate 8 min read Updated 2026-03-18

Quick Answer

Setting up a chart of accounts in Xero involves navigating to the Accounting menu, selecting Chart of Accounts, and adding or customizing account codes and names to match your business structure. Xero provides default accounts that can be modified or supplemented with custom accounts based on your specific business needs.

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Prerequisites

Active Xero subscription
Admin or advisor access to Xero organization
Basic understanding of accounting principles
Business registration details and tax numbers

Step-by-Step Instructions

Access the Chart of Accounts

Log into your Xero organization and click on Accounting in the main navigation menu. Select Chart of Accounts from the dropdown menu to view your current account structure. Xero will display a default chart of accounts based on your business type and country settings.

Review the default accounts first - many businesses can use Xero's standard setup with minimal modifications.

Review and Customize Account Categories

Examine the existing account categories including Assets, Liabilities, Equity, Income, and Expenses. Click on any category to expand and view the individual accounts within it. Note the account codes and names that Xero has automatically created for your business type.

Account codes should follow a logical numbering system - assets typically start with 1xxx, liabilities with 2xxx, equity with 3xxx, income with 4xxx, and expenses with 5xxx or higher.

Add New Accounts

Click the Add Account button to create custom accounts for your business needs. Enter an Account Name, select the appropriate Account Type from the dropdown, and assign a unique Account Code. Choose whether the account should be enabled for payments and set tax rates if applicable.

Use descriptive account names that your team will easily understand, and maintain consistent numbering gaps (like 10 or 100) between codes for future additions.

Configure Tax Settings

For each account, click on the Tax Rate dropdown to assign the appropriate tax treatment. Select options like Tax on Sales, Tax on Purchases, or No Tax based on how transactions in this account should be handled. Ensure income accounts have the correct sales tax settings and expense accounts have appropriate purchase tax configurations.

Default tax rates can be changed later, but setting them correctly now will save time when entering transactions.

Set Up Bank Account Integration

Navigate to Accounting > Bank Accounts and click Add Bank Account to connect your business bank accounts. Enter your bank account details and select the corresponding account from your chart of accounts. Choose whether to enable bank feeds for automatic transaction importing.

Bank account names in Xero should match your actual bank account names to avoid confusion during reconciliation.

Configure Account Codes and Reporting

Click on individual accounts to edit their properties, including Show in Expense Claims and Enable Payments to this Account settings. Verify that account codes follow your preferred numbering system and adjust the Description field to provide additional context for users. Set accounts as Active or Archived based on current business needs.

Use the description field to clarify account purposes, especially for accounts with similar names or functions.

Review and Test Account Structure

Navigate to Reports > Account Transactions to preview how your chart of accounts will appear in financial reports. Create a test transaction using Accounting > Manual Journals to verify that accounts behave as expected. Check that the account hierarchy and groupings make sense for your reporting needs.

Run a trial balance report to ensure your chart of accounts structure will provide meaningful financial insights.

Finalize and Save Configuration

Review all account settings one final time, paying attention to account codes, names, and tax configurations. Click Save on any modified accounts and verify that all changes have been applied correctly. Consider exporting your chart of accounts using Settings > General Settings > Export Data as a backup reference.

Document your chart of accounts structure and naming conventions for future reference and team training.

Common Issues & Troubleshooting

Cannot delete or modify default accounts

Xero prevents deletion of default accounts that have been used in transactions. Instead, rename the account or archive it by clicking Archive in the account settings. Create a new account with your preferred name and code.

Duplicate account codes error

Each account code must be unique within your organization. Check existing codes in Chart of Accounts and use the search function to verify availability. Choose a different code or modify the existing account if it's no longer needed.

Tax rates not appearing correctly

Ensure your organization's tax settings are configured correctly in Settings > General Settings > Tax Rates. If custom tax rates are needed, create them first before assigning to accounts. Contact your accountant if you're unsure about tax classifications.

Accounts not showing in transaction forms

Verify the account is set to Active status and check that the account type is appropriate for the transaction type. Income accounts won't appear in expense forms and vice versa. Review the Show in Expense Claims setting for expense-related accounts.

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