What are Journal Entries?
Journal entries are the building blocks of financial accounting and record all transactions in your business. In FreshBooks, all your activities - sending invoices, accepting payments, and creating credits and expenses - are compiled into journal entries.
- All transactions entered in your FreshBooks account will have a corresponding Journal Entry, that affects at least two accounts in your Chart of Accounts (see treatment of common transactions here)
- Whenever an amount is updated, the first entry is reversed, and the new ones are created - the difference is not booked alone.
If you need to update or correct a Journal Entry, create a new one to reverse the old entry, and then create a second entry with the updated or corrected information instead. Steps can be found here.
Create Journal Entries
If there are certain entries that need to be recorded or corrected in your FreshBooks account, the Accountant can create entries manually on your behalf (like Owner's Draw for example). Creating a Journal Entry can be done with the below steps:
- As an Accountant, click on the Accounting section
- Then click on the Chart of Accounts sub-tab
- Click on New Journal Entry
- Fill out the Entry Name, Date and Currency
- Enter in a Description for easy reference
- Choose the Accounts and enter in the amount in either the Debit or Credit field (one Account should be debited and one Account should be credited)
- Use the Add a line button if you need to add more entries
- Click Save to finish and the Journal Entry will be recorded.
Viewing Journal Entries
You can use the General Ledger Report to view all manually created Journal Entries, which are called Adjustments on the report itself with the steps here.
Fixing Journal Entries
Journal Entries are historical and permanent records of transactions occurring inside the account and once created, cannot be edited or deleted. This ensures your books remain accurate. If a Journal Entry is missing information or you need to correct an error, use the below steps:
- Create a Journal Entry to reverse the error/incomplete entry (as in, the opposite of what’s been inputted in for debits and credits)
- Then create your new Journal Entry where you re-enter in the correct entry (to fix the error or add more detail).
If you corrected one entry, this results in three Journal Entries, with the final one being the updated and corrected version. The ending balance will reflect the correct amount as usual.
An Asset is a resource that your business owns, like cash in hand, prepaid expenses or office equipment. All Assets will appear in your Chart of Accounts and on your Balance Sheet Report, two types of Assets are displayed instead:
Current Assets are generally used in the daily operations of your business and can be converted into cash easily:
- Petty Cash
- Bank Accounts
- Accounts Receivable
- Customer Deposits
Fixed Assets may also be used in the daily operations of your business. They differ from Current Assets in that they typically last longer than one year:
In order to properly record the cost of Fixed Assets over the course of time that they’re used, they are depreciated.
Depreciation is the accounting process that ensures that the cost of a Fixed Asset is allocated correctly over its useful life. Since there are many different methods for calculating this, Depreciation must be recorded manually.
Both Assets and Depreciation can be recorded by having your Accountant add an Account and create a Journal Entry with the steps above.
Loans/Lines of Credit
A Loan is an amount of money that is borrowed and is meant to be paid back to the lender, often with interest costs. A Line of Credit is a preset amount of money that can be borrowed as needed, repaid, and then borrowed again on a revolving basis often with interest costs.
In order to recognize a loan or a line of credit, as well as principal repayments, and any interest costs (if applicable) within FreshBooks, your Accountant can add an Account and create a Journal Entry with the steps above.
Owner's Equity represents an owner's investment into their business as well as any withdrawals from the business. This can be withdrawing funds for personal use, or depositing funds from a personal account to a business account to help with cash flow or funding.
Owner's Equity can be recorded in one of two ways:
- If you are using Bank Reconciliation, you can mark the transaction as Owner's Equity with the steps here
- If you are not using Bank Reconciliation, your Accountant can record Owner's Equity as a Journal Entry with the steps above