Many companies today are selling online. Now we all know that when we sell online, we need to take payment via Credit Card from our customers. Many companies choose to use PayPal as their merchant processor for their website but are unsure of how to handle the tracking of PayPal in their QuickBooks. Here are some tips: (Click on the images to see a larger view)
You can actually enter in your PayPal transactions a few different ways. For all the different ways, you first need to create 2 accounts in your Chart of Accounts. The first account is a Bank Account called PayPal. The other one is an Expense Account called Merchant Service Fees or PayPal fees.
Here is option 1:
Enter in a Sales Receipt into QuickBooks for each sale using the actual items from your item list that the customer purchased. (This will give you an accurate ‘Sales by Item’ report that can be very handy to have.) At the end of each sales receipt, enter in a Subtotal if you have multiple items and then enter in an item called “PayPal fees”. (Create this item as an ‘other charge’ in your Item list and map it to the Merchant Service Fees expense account.) Once you put this line on the Sales Receipt, put in the dollar amount of the fees that were withheld as a negative amount. Your total on your Sales Receipt should now reflect the total sale less the fees therefor giving you just the amount that PayPal deposited into your PayPal account. Make sure to choose to Deposit to the PayPal Bank account. The downside to this process is if you want to give a copy of the sales receipt to your customer, they will be able to see all your PayPal fees.
Enter in a Sales Receipt into QuickBooks for each sale using the actual items from your item list that the customer purchased. (This will give you an accurate ‘Sales by Item’ report that can be very handy to have.) If using a Sales Receipt, choose “Undeposited Funds” in the Deposit to field. If using Invoices, you then need to receive the customer payment in the Receive Payments screen and make sure the payment is going to Undeposited Funds. Now, to record the actual deposit, go to Banking>Make Deposits and you will see a screen listing all your PayPal payments. Click off the individual Payments that you want to deposit into the PayPal account and click ok. Make sure the Deposit to field says “PayPal” and on the last line of the deposit, enter in “Merchant Service Fees” in the From Account column and add in the fees withheld as a negative number. Your total on your Deposit should now reflect the total payments received less the fees therefor giving you just the amount that PayPal deposited into your PayPal account. The downside to this process is that although you will have a clean Sales Receipt or Invoice to show your customer, it takes a bit more work on the bookkeeping side to make sure you move each payment over to the PayPal account properly.
Create your Sales Receipts and Invoices just like option 2 and have all the payments go directly into the PayPal bank account instead of Undeposited Funds. Then, on a regular basis, add up all the fees that have been withheld during that time and create one check out of the PayPal account for the total amount of the fees, posting to Merchant Service Fees. This will bring your PayPal account balance on track. The downside to this option is although it’s a bit faster in the data entry party, it will be difficult to reconcile the account on a regular basis as the entry is not following the statement exactly as it appears.