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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 that can be sent to your financial adviser in .iif (QuickBooks compatible) and .csv formats.

Used by financial advisers and accountants, journal entries help generate financial reports and tax filings for your business.

 

For the Business Owner

 

For the Accountant

Benefits of Journal Entries

If you have an accountant or financial adviser, journal entries deliver big benefits. With FreshBooks automatically logging all of your journal entries on the backend, all you need to do is send a single file to your accountant that captures all of your invoice and expense data (for your given date range). This allows your accountant to spend less time ticking and tying the numbers together, and more time on interpreting those numbers and giving you advice on improving your business.

Using Journal Entries

Typically you would be sending journal entries to your accountant when you need to report on a new period (example: year end). If you have an accountant, send them an invitation to access your account through the Accountant Centre with the steps here.

If your Accountant does their financials in QuickBooks, the .iif format (selected by default when exporting from FreshBooks) will transfer everything directly into their QuickBooks system.

Importing into QuickBooks

You can import these Journal Entries from FreshBooks into QuickBooks as a .iif format.

The .iff format does not systematically prevent duplicates, so please backup your QuickBooks data before attempting the import for the first time:

  1. Open your Company File in QuickBooks
  2. Go to File
  3. Click on Create Backup…
  4. Click on Online Backup or Local Backup depending on what you prefer. We recommend doing both to be as safe as possible
  5. Click Next
  6. Save the file on your computer or online.

Then to import the .iff file into QuickBooks, use the below steps:

  1. Open your Company File in QuickBooks
  2. Go to File (make sure you have a backup saved before proceeding further)
  3. Click on Utilities, then select Import
  4. Click on IIF Files…
  5. Then choose the IIF file you downloaded from FreshBooks.

Principles Used

  1. We book all entries to a standard Chart of Accounts. If your accounts are named differently in your system, we recommend you rename the accounts in the exports or after importing to QuickBooks.
  2. Whenever an amount is updated, we reverse the first entry, and then create new ones. We do not book the difference alone.
  3. Export date ranges refer to the recorded date of entries, and not the date of the invoice/payment/credit. For example, if a user updates an invoice from the month before, the relating reversal entry will show up in this month’s export because that is when the change was made. This ensures no user can affect prior periods that have been closed.
  4. For the QuickBooks export, we only export Journal Entries in the base currency of the account (.iff files can only contain one currency).
  5. Expenses are by default in the base currency of the account that the user has configured.

Chart of Accounts

All Journal Entries are booked to a standard Chart of Accounts, which consists of:

Type

No.

Account

Subcategories

Asset

1000

Cash

Petty Cash

Asset

1200

Accounts Receivable

Accounts Receiveable

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 to be listed here as Expenses are created and assigned to them)

Expense

 6000

Operating Expense

(Expense Categories to be listed here as Expenses are created and assigned to them)

Expense

 6xxx

Taxes Paid

Tax Name 1

Tax Name 2

 * Additional accounts will automatically be created for connected bank accounts and 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. You can read more about any prior journal entry behaviour in the Pre September 2012 section below. We recommend showing your accountant this article to help clarify any confusion around the treatment of journal entries.

Pre September 2012

Journal Entries weren’t released until September 1, 2012, so all entries exported between Sept 1, 2012 and February 13, 2014 will use only the last updated value of any Invoice, Payment or Credit.

Here’s an example that may help:
From Dec 2012 to April 2013, the FreshBooks user made an Invoice for $100 and updated it several times. The final value of the Invoice was $120. When the user exports their Journal Entries for the period of Nov 2012 to Aug 2013, the only entry they will see is for this Invoice is:

Debit A/R: $120
Credit Sales: $120

The date of record will be the last updated date of the Invoice.

We use this treatment because we know that the Invoice was both created and updated within the export period. Therefore we are confident in writing only the current state of the Invoice as the total effect of the Invoice to the Customer’s books. The same treatment applies to Payments and Credits.

If, however, the creation or update of the Invoice/Payment/Credit predates the export period, we will not know for sure what entries to make because the business may have already made entries for the Invoice in their books.

Here’s another example:
In Aug 2012, a user creates an Invoice for $100. At the end of Sept 2012, they book their quarter end and include an entry (for example, in QuickBooks) for the sent Invoice of $100 as sales. In Dec 2012, they update the same Invoice in FreshBooks to $120.

When they export a period of Dec 2012 to Aug 2013, the correct (net) entry should be:

Debit A/R: $20
Credit Sales: $20

However, because we do not know that they actually booked the $100, we cannot make this entry. Therefore, what we have done is simply to book the entry the same way as in the first example, but we will flag the entry with an asterisk in the export.

Therefore, if you see a comment in the “Note to Accountant” column or the .csv or the memo field of the .iif in the export, it is to alert to you (the Accountant) to review that specific Invoice/Payment/Credit and adjust the entry based on what your client/business has already booked in the past.