PayPal in QuickBooks Desktop: give it its own bank account

Card processors like WooPayments and Stripe send you payouts: one transfer for a batch of sales, less fees and refunds. PayPal works differently. Money from each sale sits in your PayPal balance until it moves to the bank, by hand or on a schedule, in amounts that have nothing to do with any one order.

That difference is why PayPal sales recorded the card-processor way are so hard to reconcile.

Why Undeposited Funds doesn’t fit PayPal

For card payouts, payments wait in Undeposited Funds and each payout becomes one deposit equal to the bank line. With PayPal there is no payout made of particular orders to match against. A transfer of 1,500.00 to the bank may hold half of Tuesday’s sales and none of Wednesday’s. PayPal payments left in Undeposited Funds pile up, and someone ends up forcing deposits together until the total looks close.

Treat PayPal as a bank, because it is one

Create a Bank account in QuickBooks called PayPal. Then:

• Payments from PayPal orders go straight into the PayPal account (Deposit To: PayPal), not Undeposited Funds.
• Refunds to PayPal customers come out of the PayPal account.
• Moving money to the bank is a transfer from PayPal to your checking account (Banking, Transfer Funds). The checking account shows one line equal to the bank statement, and the PayPal balance comes down by the same amount. A transfer moves money between your own accounts: it is not another sale, so it never goes through Undeposited Funds or a customer.

Now the PayPal account in QuickBooks should equal your PayPal balance, and you can reconcile it against PayPal’s monthly statement the same way you reconcile checking.

PayPal’s fees

PayPal takes its fee from each payment, so less than the sale reaches your balance. Two clean ways to record it:

• On each invoice: a minus line for the fee, posting to your merchant fees account, so the payment equals what reached PayPal.
• Once a month: leave payments at the order total and enter the month’s fees from PayPal’s statement as one expense out of the PayPal account.

Either works. Pick one and keep to it, the same rule as card fees.

The monthly check

1. Download the month’s activity from PayPal.
2. Reconcile the QuickBooks PayPal account to the statement’s ending balance.
3. Anything left over is usually a fee that wasn’t entered, a refund entered from the wrong account, or a transfer recorded only on one side.

If your PayPal account holds other currencies, convert them in PayPal before transferring: QuickBooks Desktop US books are kept in dollars.

In NemoWorks Sync

Set it once: Settings, Payments, Account by gateway, and pick your PayPal bank account for PayPal. PayPal payments are then recorded there and PayPal refunds come out of it, while card payments keep waiting in Undeposited Funds for their payouts. Transfers from PayPal to the bank are yours to enter, as with any two bank accounts. How payments and payouts are booked.