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
• Journal Entry Treatment for Transactions

Principles Used

1. We book all entries to a standard Chart of Accounts
2. Whenever an amount is updated, we reverse the first entry, and then create new ones. We do not book the difference 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

* 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
• 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 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

• 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.