How to handle Paypal transactions in QuickBooks Online
As a QuickBooks ProAdvisor I often get asked, how to record Paypal transactions in QuickBooks. I have seen numerous QuickBooks files all with different ways of accounting for PayPal transactions. Some work great, some work o.k. and some fail miserably.
Recording your PayPal transactions the wrong way can result in many issues including, overstating income, not accounting for purchases made from your PayPal account, which are often tax deductible expenses, and mismanagement of your PayPal funds.
Set-up your Paypal account in QuickBooks
To successfully manage PayPal transactions the first thing I recommend is setting up your PayPal account in QuickBooks as a bank account, just as you would your “normal” checking account.
Steps to set-up your Paypal account in QuickBooks Online
- Go the gear icon in the upper right hand corner
- Select Chart of Accounts
- Click on the green “New” button, in the upper right hand corner.
- Select account type, “Bank”
- Select detail type, “Checking”
- Name the account “Paypal”
- Click on Save and Close
By setting it up as a bank account, you can record all sales/income as deposits into the account as well as all purchase/expenses as payments going out of the account.
This gives you the ability to view a running balance of the available funds in your PayPal account, and allows you to reconcile the account to your monthly PayPal statements, which should be done at the end of each month just as you would your other bank accounts.
When you transfer money from your PayPal account to your “normal” bank account you will record this in QuickBooks as a transfer from your Paypal bank account to your “normal” bank account.
Bottom line is don’t over complicate the PayPal transactions. Thinking of PayPal as just another bank account where money is deposited in and funds are taken out helps to keep it simple.
Set-up Paypal bank feed in QuickBooks Online
From the dashboard, choose the Connect Accounts option, (it will be on the right hand side of the screen) on the next screen type in Paypal and choose connect to Paypal. Follow the onscreen instructions to allow Intuit to access your Paypal data.
*(Note: make sure the date to start the import from is set to the date you want activity from).
As always, if you have any further questions on how to best use PayPal or QuickBooks for your business I’m here to help!