Tracking PayPal Transactions in QuickBooks

Common Scenario:  An invoice is created in QuickBooks. Client pays invoice via PayPal. The PayPal fee is deducted, then funds are transferred into the business checking account. The most common question is “How can I mark my customer invoice paid in full after the PayPal fee deduction and still get the deposit recorded in my checking register in the correct amount?”  And this seems to be a bit tricky for 90% of business owners. The answer is very simple though. First, lots of people do not consider PayPal as a bank account, however in QuickBooks PayPal should be set up as a bank account because money is flowing through that account. Once PayPal is set up as a bank account in QuickBooks it should be treated as such, reconciled, etc.  When receiving a payment via PayPal the correct way to post this payment in QuickBooks should be:  Customers>Receive Funds>Enter the full payment amount and make sure it’s set to go into the UnDeposited Funds account> save and then go to Banking>Make Deposits>Choose that payment and the deposit dialog box will pop up, set the deposit to account to PayPal, then add a line item for Merchant Account Fees or Bank Service Charges, enter the PayPal fee as a negative amount on the deposit, and your deposit balance should match your PayPal detail. Save that. Then go into your PayPal account register and create a transfer for the amount that was transferred from PayPal into the Checking Account. Voila’ ….it’s a few extra steps, but it’s exactly as it actually happened and correct from the paid customer invoice all the way into the checking account.

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