Frequently Asked Questions

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.

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

  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.

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


  • 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.

Heres 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.

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