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
  • Assets
  • Loans/Lines of Credit
  • Owner's Equity
• Journal Entry Treatment for Transactions

Principles Used

1. All transactions entered in your FreshBooks account will have a corresponding Journal Entry, that affects at least two accounts in your 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 or corrected information instead. Steps can be found 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.

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. This ensures your books remain accurate. If a Journal Entry is missing information 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.

Assets

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

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

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:

• Property
• Plant
• Equipment

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.

Liabilities like Loans and Lines of Credit will appear in your Chart of Accounts and on your Balance Sheet Report. 

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

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.

Equity, including Owner’s Equity, Common Stock and Retained Earnings will appear in your Chart of Accounts and on your Balance Sheet Report. 

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

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.