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.
Feel free to send your financial adviser or accountant this article so they have a better idea of how journal entries are generating your financial reports and tax filings for your business. Currently, journal entries are not available to export from your account at this time.
Principles Used
- We book all entries to a standard Chart of Accounts
- Whenever an amount is updated, we reverse the first entry, and then create new ones. We do not book the difference alone.
Chart of Accounts
| Type | No. | Account | Subcategories |
| Asset | 1000 | Cash | Petty Cash |
| Asset | 1200 | Accounts Receivable |
Accounts Receivable Customer Deposits |
| Asset | 1500 | Property, Plant and Equipment |
Office Equipment Furniture |
| Asset | 1600 | Deferred Discount | Deferred Discount |
| Liability | 2000 | Accounts Payable |
Accrued Payroll Accrued Rent |
| Liability | 2xxx | Unearned Revenue | Unearned Revenue |
| Liability | 2xxx | Customer Credit | Customer Credit |
| Liability | 2xxx | Credit Card* | |
| Owner's Equity | 3000 | Owner's Equity |
Common Stock Retained Earnings |
| Income | 4000 | Revenue | Sales (includes Other Income) Billed Expenses Ad Revenue Sale of Goods Rental Income Discounts |
| Expense | 5000 | Cost of Goods Sold | (Expense Categories will be listed here as Expenses are created and assigned to them) |
| Expense | 6000 | Operating Expense | (Expense Categories will be listed here as Expenses are created and assigned to them) |
| Expense | 6xxx | Taxes Paid |
Tax Name 1 Tax Name 2 |
* Additional accounts will be automatically created for connected bank accounts, credit cards.
Journal Entry Treatment for Transactions
Jump to the specific treatment for a transaction type below:
Invoices
- An invoice is created for a billed task or item sale
Account Debit Credit Accounts Receivable (A/R) $10 Sales $10 - An invoice is created for a billed expense
Account Debit Credit A/R $10 Billed Expenses $10 - An invoice with a billed service with the tax "HST" is created
Account Debit Credit A/R $10 Sales $9 HST $1 - An invoice with billed tasks has an amount updated (e.g., from $10 to $12)
- The original entry is reversed
Account Debit Credit Sales $10 A/R $10 - A new entry is booked for the total updated amount
Account Debit Credit A/R $12 Sales $12
- The original entry is reversed
- An billed service invoice is deleted
- The original entry is reversed
Account Debit Credit Sales $10 A/R $10
- The original entry is reversed
Payments
- A payment is made on an invoice
Account Debit Credit Cash $10 A/R $10 - A payment has an amount updated (e.g. from $10 to $8)
- The original entry is reversed
Account Debit Credit A/R $10 Cash $10 - A new entry is booked for the total updated amount
Account Debit Credit Cash $8 A/R $8
- The original entry is reversed
- A payment is deleted
- The original entry is reversed
Account Debit Credit A/R $10 Petty Cash $10
- The original entry is reversed
Expenses
- Create a non-Cost of Goods Sold (COGS) travel expense manually
Account Debit Credit Travel* $10 Petty Cash $10
* The parent account in this case would be "Operating Expense" - Create a travel expense considered COGS manually
Account Debit Credit Travel* $10 Petty Cash $10
* The parent account in this case would be "Costs of Goods Sold" - Create a travel expense manually with $1 tax (tax assumed recoverable, contra-asset)
Account Debit Credit Travel $9 HST $1 Petty Cash $10 - Travel Expense created through a connected AMEX credit card
Account Debit Credit Travel $10 American Express #1234 $10 - Expense created through connected RBC bank account
Account Debit Credit Expense Category $10 RBC Bank Account #123 $10 - User updates a travel expense amount (e.g. $10 to $12)
- The original entry ($10) is reversed, new entry is booked
Account Debit Credit Travel $10 Petty Cash $10
Account Debit Credit Petty Cash $12 Travel $12
- The original entry ($10) is reversed, new entry is booked
- When a user rebills an expense to the client, with no markup
Account Debit Credit A/R $10 Billed Expenses $10 - When a user rebills an expense to the client, with a $1 markup
Account Debit Credit A/R $11 Billed Expenses $11
* Could be bank/credit account, if applicable
Important: Duplicate expense lines if you have a bank account & credit card connected:
Currently, when a FreshBooks user connects both their bank account or credit card to automate expense tracking, only the outflows of money are captured by the system. This can creates duplicate expenses.
Here’s a full example:
User A has two $100 expenses on their credit card - FreshBooks has recorded this as an expense.
User A pays the $200 off using their bank account. FreshBooks has now created another expense for $200 because it cannot differentiate between a credit card payment and normal cash outflow.
This means there are $400 of expenses logged when in fact the user should only have $200.
To fix this, we recommend that the users with both accounts connected delete all payments to their credit cards from their bank accounts in the expense section. This preserves the item level expense detail while removing the duplicates.
Credits
- A credit is created
Account Debit Credit Petty Cash $10 Customer Credit $10 - A credit has an amount updated ($10 to $12)
- The original entry is reversed
Account Debit Credit Customer Credit $10 Petty Cash $10 - A new entry is booked for the total updated amount
Account Debit Credit Petty Cash $12 Customer Credit $12
- The original entry is reversed
- A credit is deleted
Account Debit Credit Customer Credit $10 Petty Cash $10 - A credit is applied to an invoice
Account Debit Credit Customer Credit $10 A/R $10
Drafts
- A draft invoice is created
- No entry is made
- A draft invoice with a billed service invoice is partially paid (e.g., $5 payment on a $10 invoice)
- When the partial payment is made, both the invoice and the payment are booked
Account Debit Credit A/R $10 Sales $10
Account Debit Credit A/R $5 Petty Cash $5
- When the partial payment is made, both the invoice and the payment are booked
Pre March 2018
We’ve made some substantial changes to our Journal Entries as part of a top-to-bottom overhaul of our accounting system. We recommend showing your accountant this article to help clarify any confusion around the treatment of journal entries.
https://www.freshbooks.com/support/what-are-journal-entries