Technical definition
The structured list of account names and codes an entity uses to classify transactions consistently.
How it works
The chart groups balance-sheet and income-statement accounts, assigns unique identifiers and defines the level of detail available for reporting. A good design reflects the business model without creating unnecessary accounts.
Everyday example
A simple chart may use 1000-series codes for assets, 2000 for liabilities, 4000 for revenue and 6000 for expenses.
Common pitfall
Adding a new account for every transaction makes reporting fragmented; using too few accounts hides decision-relevant information.