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      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

      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.

      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.

      Create Journal Entries

      Only Accountants invited to your account can create Journal Entries to help ensure your financial reporting is accurate. 

       

      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 EntryNew journal entry box with fields.
      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

      • 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.

      Heres 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.

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