Everything you need to know about double-entry accounting in FreshBooks!
Interested in implementing double-entry accounting, but want to know more about the industry-standard financial statements it entails? You’ve come to the right place! We’re breaking down each element that makes up this robust system of accounting reports and tools.
Once you understand the purpose of each of them, Plus and Premium users can head over to their FreshBooks accounts and find these easy-to-use accounting tools. They function a lot like our other reports, but if you need help, our Customer Service Support Team is standing by.
FreshBooks has always made it easy for you to share your accounting and financial information with your accountant or bookkeeper. All of our reports like Cash Flow Statement, Expense Report, and Journal Entries, as well as our double-entry accounting reports, can be printed, emailed, or exported for Excel.
Double-entry accounting goes one step further. You can invite your accountant or bookkeeper to create a personal profile so they have direct access—to your FreshBooks double-entry accounting tools only. This allows you both to collaborate on your accounting, ensure you both see your books the same way, and it makes it easy for your accountant to provide advisory and other services.
Chart of Accounts
The mother of all financial record-keeping accounting functions, the Chart of Accounts is an organizational tool that is a complete listing of every account in your accounting system. This includes assets, liabilities, equity, revenue, and expenses. It helps you keep all your financial information organized in an accountant-friendly way.
The Chart of Accounts lists all the accounts your small business records in your General Ledger and allows you to organize each of them with sub-categories and add/remove accounts as necessary. For example, within the categories you create in each account (i.e. an income statement account may include operating revenues, operating expenses, etc.), you can organize by business function (i.e. administration, sales, production).
The more detailed you are in your Chart of Accounts, the more accurate and insightful your data will be.
Want a big-picture snapshot of your business’s financial position at any moment in time? The Balance Sheet is the accounting report that has it. Factoring in your company’s assets, liability, and equity, you’ll know definitively if you’re in the red or black.
You’ll know how much you’re owed (accounts receivable) and how much you have in inventory, cash on hand, or investments. At the same time, you’ll have a complete view of how much you owe (accounts payable) and how much you’ve committed to but haven’t paid yet (rent, service plans, contractor payments).
And with a clear summary of all earnings over the lifetime of your business, you’ll have a holistic view of the health of your business.
You may already know how easy it is to connect a business bank account and/or credit card to your FreshBooks account to easily track and record every expense transaction. Double-entry accounting allows you to automatically connect payments and income to your FreshBooks account too.
When you access the Bank Reconciliation feature, you’ll see any new expenses, payments, or income that need to be reconciled in your FreshBooks account. It’s like a checklist that helps you make sure your records and reports are up to date.
Bank Reconciliation is one of the biggest time-saving accounting features in double-entry accounting.
If you want to impress your accountant or bookkeeper, casually slip “general ledger” into your next meeting. This document is like a business’s history. It tells the story of where you’ve been, where you are, and offers insights into where you’re headed.
General Ledger is a master double-entry system accounting document that provides a complete record of all the accounts a company uses (also found in the Chart of Accounts) divided into three types: assets, liabilities, and equity. This view offers a clear understanding of all of your accounts and allows you to create financial statements.
Cost of Goods Sold (COGS)
At some point, most business owners need to buy equipment and supplies to help them run their business. Those are basic expenses. But sometimes you need to buy a specialized type of good that’s essential to completing a service for a specific customer. For example, a contractor may need to purchase a particular tool to carry out the detailed woodwork a client wants to be done. Or a graphic designer could have to hire an illustrator to complete one aspect of a client’s logo.
When it comes to a business transaction like purchasing supplies, equipment, or a service to be used exclusively for one client, those are COGS (Cost of Goods Sold). In any accounting system, it’s important to categorize COGS differently than expenses, so you aren’t taxed on them and so they don’t misrepresent your margins. On tax forms and financial statements, COGS appear on a separate line and appear to reduce your income.
Do you earn income outside the services for which you invoice? Tradespeople sometimes pick up small cash jobs, bloggers may have affiliate income and photographers may sell their photos to stock photography websites. This income isn’t technically considered regular income, but it’s important to track it in your accounting system.
Here’s where the Other Income tool comes in. You can record the extra ways you make money outside your usual services, so tax time is easier and you have a complete picture of what you bring in each year.
Not tracking Other Income in your accounting system can lead to scrambling and missed entries come tax time.
Want to double-check your accounting to make sure your list of debits and credits match up? You’ll find that information in your Trial Balance. This report lists the balances found in each of the accounts in your General Ledger. Debit balances are listed in one column and credit balances in another. The total of each should be identical.
Most businesses use a Trial Balance at month-end, quarterly or annually to easily ensure their list of debits and credits align. And, if you spot an error while reviewing Trial Balance you can easily fix it right in the report.
When you employ the functions of the FreshBooks double-entry accounting system, you’re opening up a new world of business insights, easy collaboration with accounting professionals, and the kind of precision that can’t be beaten at tax time.
For a more robust explanation about who it’s for and how it works together, read Introducing: Industry Standard Double-Entry Accounting.
NOTE: Double-entry accounting may also uncommonly be referred to as double-entry bookkeeping.
Updated: April 30, 2021