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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

 

How do Journal Entries benefit me?

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.

 

When should I be using it?

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

Account

User Activities
(triggers Journal Entries)

Asset

Accounts Receivable

Invoices, Payments, Applied Credit

Asset

Payments Received

Payments, Credits

Asset

Paid on Expenses

Expense created with tax (assumed recoverable)

Contra-Asset

(name of each bank account)

Expense created from
connected bank account

Contra-Asset

Expenses Paid

Expense manually logged

Liability

Payable

Invoice sent with tax

Liability

(name of each credit card account)

Credit card Expense created

Liability

Customer Credit

Credit, Applied Credit

Income

Sale of Items

Invoices

Income

Billed Tasks

Invoices

Income

Billed Expenses

Invoices

Income

Late Fees

Invoices

Income

Discounts

Invoices

Expense

(each parent expense category)

Expense creation

Expense

COGS

Expense creation under COGS category, Assigning Expense to Client

 

Journal Entry Treatment For Transactions

Jump to the specific treatment for a transaction type below:

 

Invoices

  • An invoice is created for a billed task, item sale, or re-billed expense

    Account Debit Credit
    A/R $10  
    Billed Tasks/Items/Expenses   $10

  • An invoice is created with sales tax

    Account Debit Credit
    A/R $10  
    Billed Tasks/Items/Expenses   $9
    (tax) Payable $1

  • An invoice has an amount updated (e.g., from $10 to $12)
    • The original entry is reversed

      Account Debit Credit
      Billed Tasks/Items/Expenses $10  
      A/R   $10

    • A new entry is booked for the total updated amount

      Account Debit Credit
      A/R $12  
      Billed Tasks/Items/Expenses   $12

  • An invoice is deleted
    • The original entry is reversed

      Account Debit Credit
      Billed Tasks/Items/Expenses $10  
      A/R   $10

 

Payments

  • A payment is made on an invoice

    Account Debit Credit
    Payments Received $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  
      Payments Received   $10

    • A new entry is booked for the total updated amount

      Account Debit Credit
      Payments Received $8  
      A/R   $8

  • A payment is deleted
    • The original entry is reversed

      Account Debit Credit
      A/R $10  
      Payments Received   $10

 

Expenses

  • Create an expense manually (considered cash)

    Account Debit Credit
    Expense Category $10  
    Expenses Paid   $10

  • Create an expense manually with $1 tax (tax assumed recoverable, contra-asset)

    Account Debit Credit
    Expense Category $9  
    (tax name) Paid on Expenses $1  
    Expenses Paid   $10

  • Expense created through connected credit card

    Account Debit Credit
    Expense Category $10  
    (name of credit card account)   $10

  • Expense created through connected bank account

    Account Debit Credit
    Expense Category $10  
    (name of bank account)   $10

  • User updates an expense amount (e.g. $10 to $12)
    • The original entry ($10) is reversed, new entry is booked

      Account Debit Credit
      Expense Category - COGS $10  
      Expenses Paid*   $10

  • Expense created if user assigned category to COGS

    Account Debit Credit
    Expense Category   $10
    Expenses Paid* $10  

  • When a user rebills an expense to the client

    Account Debit Credit
    Expense Category   $10
    Expenses Paid* $10  
    Expense Category - COGS $10  
    Expenses Paid*   $10

*Could be bank/credit account, if applicable

Important: Duplicate expense lines if you have a bank account & credit card connected:

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
    Payments Received $10  
    Customer Deposit   $10

  • A credit has an amount updated ($10 to $12)
    • The original entry is reversed

      Account Debit Credit
      Customer Deposit $10  
      Payments Received   $10

    • A new entry is booked for the total updated amount

      Account Debit Credit
      Payments Received $12  
      Customer Deposit   $12

  • A credit is deleted

    Account Debit Credit
    Customer Deposit $10  
    Payments Received   $10

  • A credit is applied to an invoice

    Account Debit Credit
    Customer Deposit $10  
    A/R   $10

 

Drafts

  • A draft invoice is created
    • No entry is made

  • A draft invoice is partially paid (Example $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  
      Billed Tasks/Items/Expenses   $10


      Account Debit Credit
      A/R   $5
      Payments Received $5  



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.