How Are Common Transactions Recorded as Journal Entries?

Common activities in FreshBooks like sending an Invoice, logging an Expense, or doing Bank Reconciliation, are all recorded in FreshBooks as Journal Entries that are automatically posted to your Chart of Accounts and your General Ledger Report. The General Ledger Report can be used to review Journal Entries, and below is a list of how all common treatments are recorded as Journal Entries in FreshBooks.

• Review Journal Entries
• Petty Cash Account
• Common Treatments
• Bank Reconciliation
  • Opening Balances
  • Unreconciled Transactions in Bank Rec
  • Reconciled Transactions in Bank Rec - Money Inflow
  • Reconciled Transactions in Bank Rec - Money Outflow
• Expenses
  • Bills
  • Bill Payments
• Invoices
  • Billed Expenses
  • Deposits
  • Discounts
  • Drafts
  • Payment Schedules
  • Retainers
• Payments
  • Credit Notes
  • Overpayment Credits
  • Prepayment Credits
  • Other Income
• For Migrated Accounts from FreshBooks Classic

Review Journal Entries

When reviewing Journal Entries, we recommend using the General Ledger Report. This is because Journal Entries are recorded differently when compared between the Chart of Accounts and the General Ledger Report:

Petty Cash Account

Note that Petty Cash is treated as a clearing account:

• All transactions are initially recorded in the Petty Cash Account (Payments received, Other Income entries deposited and Expenses paid out)
• The process of completing Bank Reconciliation (Bank Rec) will move transactions out of the Petty Cash Account into the connected Bank or Credit Card Account that you are reconciling
• Your Accountant can also reassign any transaction entered to other Accounts in the CoA with Journal Entries

Common Treatments

Each common treatment is written in the format of how they appear on the General Ledger Report:

Bank Reconciliation

Opening Balances

An Opening Balance of $10 is entered for a Bank Account:

An Opening Balance is reset for a Bank Account (from $10 to $12). The original Opening Balance entry is updated in the General Ledger Report:

An Opening Balance of $10 is entered for a Credit Card Account:

An Opening Balance is reset for a Credit Card Account ($10 to $12). The original entry is updated for the new Opening Balance entered:

Unreconciled Transactions in Bank Rec

Money Inflow 

A Money Inflow transaction (positive amount) is imported in Bank Rec. It appears as unreconciled on the left side in Bank Rec and no entries are created upon import.

Money Outflow

A Money Outflow transaction (negative amount) is imported in Bank Rec. It appears as unreconciled on the left side in Bank Rec. An Expense entry is automatically created via Bank Connections:

*Travel is an Expense Category/Account assigned to the Expense.
 

Reconciled Transactions in Bank Rec - Money Inflow

Note: After a transaction is matched or marked in Bank Rec, the entry will be reflected in the Bank Account or Credit Card Account instead of Petty Cash. Credit Notes do not appear in Bank Reconciliation as no cash is exchanged in the transaction. If you need to reconcile a Credit received in a Bank Account, an Overpayment or Prepayment Credit can be created instead.

Expense Refund

A Money Inflow transaction of $10 is Marked as an Expense Refund in Bank Rec. The amount is recognized in the Expense Category / Account selected on the refund in Bank Rec:

*Travel is an Expense Category/Account assigned to the Expense.

Other Income

A Money Inflow transaction of $10 on the left is matched to a Jan 1, 2020 Other Income entry on the right in Bank Rec:
 

Overpayment Credits

An Overpayment Credit is matched in Bank Rec. Matched Overpayment Credits will be reflected in the Bank or Credit Card Account instead of Petty Cash:

Owner’s Equity - Contribution

A Money Inflow transaction of $10 is Marked as Owner's Equity in Bank Rec for an Owner’s Equity Contribution. The amount is cleared out of Petty Cash and recognized in Owner’s Equity:

Payment

A Money Inflow transaction of $10 on the left is matched to a Jan 1, 2020 Payment applied on an Invoice on the right in Bank Rec:

Prepayment Credits

A Prepayment Credit is matched in Bank Rec. Matched Prepayment Credits will be reflected in the Bank or Credit Card Account instead of Petty Cash:

Transfer - Inflow

A Money Inflow transaction of $10 is Marked as a Transfer in Bank Rec. The amount is cleared out of Petty Cash and recognized in the Bank / Credit Card Account:

Reconciled Transactions in Bank Rec - Money Outflow

All Money Outflow transactions automatically create Expense entries that can be found in both the Expenses section and on the FreshBooks Entries (right side) of Unmatched in Bank Rec.

Bill Payments

A Bill Payment is matched in Bank Rec. Matched Bill Payments will be reflected in the Bank or Credit Card Account instead of Petty Cash:

Expenses

An Expense is matched in Bank Rec. Matched Expenses will be reflected in the Bank or Credit Card Account instead of Petty Cash:

*Travel is an Expense Category/Account assigned to the Expense.

Owner’s Equity - Draw

A Money Outflow transaction is Marked as Owner's Equity in Bank Rec for an Owner’s Equity Draw. This sometimes includes personal expenses processed in a business account. The original Expense entry created via Bank Connections is automatically deleted.

Transfer - Outflow

A Money Outflow transaction of $10 is Marked as a Transfer in Bank Rec. The original expense entry created via Bank Connections is automatically deleted. The amount is cleared out of Petty Cash and recognized in the Bank / Credit Card Account:

Expenses

An Expense is created. This Expense is categorized under Travel and is not marked as Cost of Goods Sold (COGS):

*The Account is Travel, and the Parent Account is Operating Expenses.

An Expense is created. This Expense is categorized under Travel and is marked as Cost of Goods Sold (COGS). The entry is the same for Expenses whether they’re marked as billable or non-billable:

*The Account is Travel, and the Parent Account is Costs of Goods Sold.

An Expense is created with Sales Tax applied. This Expense is categorized under Travel and is not marked as Cost of Goods Sold (COGS):

*The Taxes Paid account appears as the Sales Tax name assigned to the created tax rate. A Taxes Paid account will also be automatically created in your Chart of Accounts the first time the tax rate is applied to an Expense.

An Expense categorized as Travel is imported via a Bank Connection from a bank account or a credit card:

Even though this Expense has been imported through a Bank Connection, it will flow through Petty Cash until it is matched in Bank Rec. To see the result of matching this transaction in Bank Rec, refer to the Reconciled Transactions in Bank Rec - Money Outflow section.

Bills

A Bill is created. This Bill is categorized under Advertising:

*The Account is Advertising, and the Parent Account is Operating Expenses.

A Bill is created with Sales Tax applied. This Bill is categorized under Advertising.

*The Taxes Paid account appears as the Sales Tax name assigned to the created tax rate. A Taxes Paid account will also be automatically created in your Chart of Accounts the first time the tax rate is applied to a Bill.

Bill Payments

A full Bill Payment is added on Jan 1, 2020 onto a $10 Bill:

A Bill Payment has an amount updated from $10 to $8 on Jan 2, 2020. Only the updated transaction can be viewed in the General Ledger Report:

A Bill Payment is deleted. No entry; the original entry is deleted from the General Ledger Report:

Invoices

An Invoice is sent for a billed service or item sale:

A billed Invoice has an amount updated (e.g., from $10 to $12). The original entry is updated in the General Ledger Report:

A billed Invoice is deleted. No entry; the original entry is deleted from the General Ledger Report:

A billed Invoice with Sales Tax applied on its line items is created:

*The Taxes Payable account appears as the Sales Tax name assigned to the created tax rate. A Taxes Paid account will also be automatically created in your Chart of Accounts the first time the tax rate is applied to a billed service, item sale or Other Income entry.

Billed Expenses

An Invoice is created to re-bill an Expense to a Client, with no markup. Before the Invoice is created, an entry is created for the re-billed Expense when the expense is entered and marked as billable.

Expenses that are marked as billable are also automatically marked as Cost of Goods Sold (COGS). You can also un-mark them as COGS in your advanced Expense settings.

*Travel is an Expense Category/Account assigned to the Expense.

The Billed Expenses entry, with no markup, is created when the Invoice is sent to the Client:

An Invoice is created to re-bill an Expense to a Client, with a $1 markup. Before the Invoice is created, an entry is created for the re-billed Expense when the expense is entered and marked as billable.

Expenses that are marked as billable are also automatically marked as Cost of Goods Sold (COGS). You can also un-mark them as COGS in your advanced Expense settings.

The Billed Expenses entry, with a $1 markup, is created when the Invoice is sent to the Client:

Deposits

Note: For Reports run on Billed/Accrual, because deposit payments are made to you prior to the delivery of goods or services, they are not initially recorded as income. Once your client has made a payment toward the remaining balance of the invoice, all payments received will be recorded as income.

An Invoice is sent with a Deposit requested on Jan 1, 2020 (Deposit is $3, Invoice total is $10):

A Payment of $3 for the full Deposit amount is added onto an Invoice with a Deposit requested on the same date Jan 1, 2020:

Then on Jan 2, 2020, any amount (e.g. $1) above the Deposit is paid subsequently on an Invoice with a Deposit requested:

 The full amount of the Invoice is now recognized as income:

Discounts

A billed Invoice with a 10% discount is created:

An Invoice with a 10% discount is sent with a Deposit requested on Jan 1, 2020 (Deposit is $3, Invoice total is $9):

A Payment of $3 for the full Deposit amount is added onto an Invoice with a Deposit requested on the same date Jan 1, 2020:

Then on Jan 2, 2020, any amount (e.g. $1) above the Deposit is paid subsequently on the Invoice with a Deposit requested. The full amount of the Invoice is now recognized as income, and the deferred discount is also recognized as a discount:

Drafts 

A draft Invoice is created and saved. No entry is made for Invoices with a draft status:

A draft Invoice is partially paid (e.g., $5 payment on a $10 invoice). When the partial Payment is added onto the draft Invoice, both the Invoice and the Payment are recorded:

Payment Schedules

An Invoice is sent for a billed service or item sale with a Payment Schedule applied. The full amount of income is recognized when the Invoice is sent:

Retainers

A Retainer is created and saved. No entry is made for Retainers.

Note: A Journal Entry is recorded once the Invoice is generated from the Retainer.

Payments

A full Payment is added on Jan 1, 2020 onto a $10 Invoice:

A Payment has an amount updated from $10 to $8 on Jan 2, 2020. Only the updated transaction can be viewed in the General Ledger Report:

A Payment is deleted. The original entry is deleted from the General Ledger Report:

Credit Notes

A Credit Note is created (either saved or sent):

A Credit Note with Sales Tax applied on its line items is created (either saved or sent):

*The Taxes Payable account appears as the Sales Tax name assigned to the created tax rate. A Taxes Paid account will also be automatically created in your Chart of Accounts the first time the tax rate is applied to a billed service, item sale or Other Income entry.

A Credit Note is deleted from the Client Profile. The original entry is deleted from the General Ledger Report:

A Credit Note is applied to an Invoice:

Overpayment Credits

A $10 Overpayment Credit is created from a Payment entered over the amount on an Invoice (e.g. $110 entered for a $100 Invoice):

An Overpayment Credit is deleted from the Client Profile. The original entry is deleted from the General Ledger Report:

An Overpayment Credit is applied to an Invoice:

Prepayment Credits

A Prepayment Credit is created (either saved or sent):

A Prepayment Credit is deleted from the Client Profile. The original entry is deleted from the General Ledger Report:

A Prepayment Credit is applied to an Invoice:

Other Income

An Other Income entry is created:

An Other Income entry with Sales Tax is created:

*The Taxes Payable account appears as the Sales Tax name assigned to the created tax rate. A Taxes Paid account will also be automatically created in your Chart of Accounts the first time the tax rate is applied to a billed service, item sale or Other Income entry.

For Migrated Accounts from FreshBooks Classic

Since FreshBooks Classic was built as a single-entry accounting system, the Bank Import feature only imported in transactions as Expenses (also known as money-out transactions). The new FreshBooks uses double-entry accounting instead. When migrating over to the new FreshBooks, these entries are recorded in Petty Cash until they can be reconciled and moved to the correct Account via Bank Reconciliation:

*Travel is an Expense Category/Account assigned to the Expense.