Paypal and QuickBooks Online Integrations

Paypal bank feeds can be problematic for many QuickBooks Online users, but not once you learn that Paypal operates differently than a traditional bank. QuickBooks Online has over 20,000 banks that participate in downloading transactions into the bank feeds for review. This is great news, however, users can easily make mistakes when it comes to Paypal bank feeds. These mistakes include duplicating expenses, overstating or understating revenues, and not properly recording transfers.

It is important to understand how your Paypal transactions get recorded. Some users of Paypal receive customer payments and make payments to vendors directly from the funds available in their Paypal balance. If this was the only scenario for Paypal, then bank feeds would be a fairly straight forward process. It’s the Paypal transactions that flow to and from a linked bank account that present issues for many. These linked checking and credit card transactions are at the heart of the complexities of working with Paypal bank feeds and which I hope to help the reader have a better grasp of working with Paypal and QuickBooks Online integrations.

If you receive customer income into your Paypal account, then it is best practice to connect Paypal to the bank feeds. This will make it easier to match and record income and expenses the transactions happen on the day to day transaction history. Also it will improve your accuracy when you perform the monthly reconciliation using your Paypal statement and QBO built in reconciliation tool.

Within this article you will find information on how:

• Recording PayPal Bank Feeds Expenses and Transfers
• Recording Paypal Sales transactions
• Customizing the Connect with Paypal App Settings
• How to Download Paypal Statements for Monthly Reconciliations

Recording Paypal Bank Feeds Expenses and Transfers

As an example, I’m going to show you how to record a $199 expenses transaction to vendor MGR. This transaction was funded through a linked checking account to Paypal. The first thing we need to identify in the bank feeds is that we have one transaction for $199 of money out from the checking account on 3/24. The other observation will be to discover that the Paypal bank feeds have 2 transactions. One is for $199 money out, to pay the vendor MGR for $199, and the other is a transfer of money into the Paypal account for $199. Let’s do a first look at the bank feeds. (If you prefer video learning, scroll down to the YouTube link at the bottom.) In the checking account I will click to expand the 3/24 transaction and look carefully at the bank details. This is the bank detail  that begins with “PAYPAL XFER *MGR Personnel LLC ORG ID:****”. 

In the Paypal account, I see two transactions. One is for the $199 expense to MGR. The second transaction is $199 of money transferred in, which is the transfer from the linked bank account.

Okay so now that we have three transactions (two in Paypal, and one in Checking), I recommend that you first add/match the expense. Go to the purchase transaction in the Paypal bank feeds and record the expense. If the expense was already recorded in QuickBooks, then you would confirm it’s match. If the expense wasn’t already in the Paypal register you could easily add it on the spot in the bank feeds by selecting the Vendor and chart of account category.

After the expense is properly recorded, the next step is to create a transfer. This action is to have the funds transfer from the Checking account to the Paypal account. You can do this by selecting the + New (from upper left hand corner) and then select Transfer. Alternatively, you can record the transfer with the bank feeds by selecting the transfer button then selecting the corresponding account the money is being transferred to or from.

After you create the transfer, you could then confirm the matches (both the Paypal and Checking) while reconciling. To do this, open the transfer from either register (Paypal or Checking) and look in the upper left corner. It ought to say “2 online banking matches”. This can be clicked on to see the memo descriptions that are on the bank statements. Looking at this link will give you confidence that you matched it properly.

See video tutorial demo on recording Paypal transactions:

Recording Paypal Sales Transactions
Now let’s talk about recording income in Paypal. With the “Connect to Paypal” app bank feed, there will be two methods of recording revenue. The first option is a sales receipt, which is the default option. The second option is a deposit. If you add a Sales Receipt from the bank feeds, it automatically separates the Paypal fees. However, the sales receipt will not pull in the customer’s name or the service/product name. In fact, there will be no customer name when adding sales receipts and the system will use the default “Paypal Sales” item which maps to the Paypal Sales income account. This account is automatically created in your chart of accounts the first time you connect to Paypal bank feeds. The issue for many, is they get confused after they add the sales receipt. They go back to edit the sales receipt, to add the customer, only to find an error stating, “Something’s not quite right…”

So if you need customer names recorded in QuickBooks, then there’s no shortcut here. First you will need to manually create the Sales Receipt, then match it as it comes into Paypal bank feeds.
If you’d rather just record a sales deposit, then you can change the transaction type from Sales Receipt to Deposit. At that point, you can record the income category and select the customer on the deposit. Do note that if you go with this option of a deposit, you will loose the ability to run the built in Sales reports.

Customizing the Connect with Paypal App Settings
If you are okay with recording Sales Receipts without customers, but prefer to change the default Paypal Sales to Sales, then you can edit those settings. First, click on the pencil icon in the top right corner of the Paypal bank feeds. Then, click Edit Settings.

You will be able to edit any preferred changes as you see listed below. 

How to Download Paypal Statements for Monthly Reconciliations
Statements can be downloaded by hovering your mouse over Activity and then clicking Reports.

Then select Statements and Monthly. You can select your month and download the statement as either a PDF or CSV format.

Ensuring that you properly reconcile your Paypal account will give you the confidence that nothing slips through the cracks with your bookkeeping from the Paypal register. It also will deliver that your Paypal balance report on the balance sheet is correct as well as recording the income and expenses without duplicates.

While there are many complexities of working with PayPal, a little bit of knowledge can go a long way. Understanding how the bank feeds function should help alleviate many of the confusion and errors that often go hand in hand with PayPal and QuickBooks Online Integrations.