PayPal & QuickBooks Online FAQ

By Ben Szweda

Throughout the year we see clients using PayPal in various ways which bring up a series of questions surrounding how PayPal integrates with QuickBooks Online (QBO). In this blog post let’s explore a few of the bigger questions that arise.

Q: Do I need to formally add my PayPal account to the Chart of Accounts in QBO? 

A: It depends. The answer is definitely yes if you leave a balance of money in the account because you would want to have this cash asset listed on your balance sheet. Additionally, as you transfer funds into and out of your PayPal account from your checking account you would need the PayPal account entered in QBO to properly record the transfer.

Transfers could be transfers that you personally initialized, or they could be transfers initiated automatically by PayPal to cover purchases with funds from your checking account when your PayPal balance is too low.

If you only use PayPal as a digital wallet, as a way to store your credit card information so checking out on vendor websites is faster, then you can get away with not connecting PayPal to your QBO account. The expense associated with whatever you purchased will be recorded within the credit card account, which definitely should be connected to QuickBooks.

Q: PayPal takes a percentage of the money my customers (donors) send. How do I record this while still recording the gross amount of my customers’ (donors’) transactions? 

A: This requires creating a Product/Service item that points to an expense account. If using sales receipts to record your income, you can create your sales receipts with two lines. The first line would be equal to the total income you earned or the total donation you received. The second line would be recorded as a negative number and would be equal to PayPal’s fee. This will make the total amount of your sales receipt equal to the net amount of the transaction, but will still record the full amount of the customers’ (donors’) payment.

Q: Are there any other options to record PayPal fees?

A: You can make note of PayPal fees by including a negative line item within the bank deposit screen. With this method, first, you would receive payment on an invoice and deposit it to “undeposited funds.” Then you would go to the Quick Create menu (+NEW) and select bank deposit. Before saving the deposit screen, where it states “Add funds to this deposit,” choose for the accounting field an expense account and enter a negative number to adjust down the total deposit amount.  As with the sales receipt method, this will make the total amount of your deposit equal to the net amount of the transaction, but will still record the full amount of the customer’s payment.

Q: Do you like to use the PayPal app or do you prefer to enter PayPal transactions manually? 

A: I like the app because it negates the need for data entry. This not only saves time but prevents typos, the chance of duplicate transactions, and the chance of missing transactions.

QuickBooks and PayPal rolled out an app called Connect to PayPal (to replace the Sync with PayPal app). It works like the Bank Feed for a checking account in that it pulls in data from PayPal automatically, including detail of the gross and fee amounts. It pushes an expense transaction into Undeposited Funds that gets deposited with the income transaction. This app accomplishes the goal we have been discussing – to have the total amount of your deposit equal to the net amount of the transaction, but still have the full amount of the customer’s payment recorded.

In the app settings, you can customize what accounts the app automatically posts the income and the fee too. I wish you could assign the income account on the fly from the bank feed, but to change the default you have to click Details and wait for the transaction to take the full screen. Still, this app is a time saver if you have heavy PayPal receivables volume.

Contact Szweda Consulting With Any Question

If you have any other PayPal questions, please contact us at (216) 509-1561 or you might find the answer featured in an upcoming blog post. If your PayPal procedures do not mirror the above best practices let Szweda Consulting help you clean up your QuickBooks account and set it up for future success.

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