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. 

• Principles Used
• Chart of Accounts
• Create Journal Entries
• Journal Entry Treatment for Transactions

Principles Used

1. All entries in your account is booked to a standard Chart of Accounts
2. 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/corrected information instead. See the steps outlined here.

Chart of Accounts

If your Accountant needs to create Custom Accounts for your Chart of Accounts, see the steps here.

* Additional accounts will be automatically created for connected bank accounts, credit cards.

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:

1. As an Accountant, click on the Accounting section
2. Then click on the Chart of Accounts sub-tab
3. Click on New Journal Entry
4. Fill out the Entry Name, Date and Currency
5. Enter in a Description for easy reference
6. 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)
7. Use the Add a line button if you need to add more entries
8. Click Save to finish and the Journal Entry will be recorded.

Fixing Journal Entries

Journal Entries are historical and permanent records of transactions occurring inside the account. This ensures your books remain accurate. If a Journal Entry is missing detail or you need to correct an error, use the below steps:

1. Create a Journal Entry to reverse the error/incomplete entry (as in, the opposite of what’s been inputted in for debits and credits)
2. 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.

Journal Entry Treatment for Transactions

Jump to the specific treatment for a transaction type below:

• Invoices
• Payments
• Expenses
• Credits
• Drafts
• Pre March 2018

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

• An billed service invoice is deleted
  • The original entry is reversed
    
    

    Account	Debit	Credit
    Sales	$10
    A/R		$10

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

• A payment is deleted
  • The original entry is reversed
    
    

    Account	Debit	Credit
    A/R	$10
    Petty Cash		$10

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

• 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 you connect both your bank account and credit card to automate expense tracking, only the outflow of money is captured by the system. This can creates duplicate expenses.

Here’s a full example:

You have two $100 expenses on your credit card - FreshBooks has recorded this as an expense.

You then pay the $200 off using your 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 worth of expenses logged when in fact you should only have $200.

To fix this, if you're using Bank Reconciliation, mark the transaction as a transfer. If you're not using Bank Reconciliation, delete all payments to the credit card from the bank account in the Expenses section. This preserves the item level expense details 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

• 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

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.