Quickbooks

QuickBooks and PayPal

Making payments with PayPal is becoming more frequent these days.  Consumers are finding it easy to set up a PayPal account and then paying for their online purchases with their PayPal account.  Business owners are finding it is an easy way to accept payments.  In fact, a consumer does not have to have a PayPal account for you to accept payments via PayPal.  Instructions on how to add a PayPal button to your invoices are found on the PayPal website.

Just exactly how does QuickBooks and PayPal work together?  You can manually enter all your PayPal transactions, you can export them from PayPal as an .iif file and import them into QuickBooks, or you can use a third party application to perform the import into QuickBooks.

The first thing you will want to do is set up a bank account called PayPal.  You do this by going to Lists > Chart of Accounts.  Click the Account button on the bottom of the window and click on New.  Name your account PayPal.

You will also want to add a new payment method.  Go to Lists > Customer & Vendor Profile Lists > Payment Method List.   Type PayPal as your payment and Other as the Pay Type and save.  Now you are ready to receive a payment from a customer and deposit that payment.

Go to Receive Payments and choose your client, enter the payment information.  Enter PayPal for the Payment Method.  Click Save and Close.  The amount is in your Undeposited Funds account, so that will need to be cleared out.   Go to Make Deposits and change the bank to PayPal.  Click on the amount you want to deposit to the PayPal account.  Click Save and Close.

After you have recorded the payment you will need to record the PayPal fees.  You can use the Write Check function to record the fees.  Change the default bank account to the PayPal account and use whatever account you have set up for bank fees for the expense.

The above method of recording a payment is manually recording each payment separately for each client.  To speed the process up, you can import all your payments for a specific date range.  Login to your PayPal business account.  Click on History > Download History.  Enter the date range for the data you want to export.  Select Quickbooks (.iff) under File Type.  Click Download History.  On the next page you can enter the name of three accounts; enter them exactly as they are named in your Quickbooks file. PayPal for your bank account, your income account name, and your expense account name.  Click on Download Log and save it.

Open your QuickBooks file, go to File > Utilities > Import > IIF files.  Browse out to where you saved the file and double click to import into QuickBooks.  You will receive a message that your file has been imported.  You should now see your data in your PayPal account, and either your income, expense accounts or both.  This method will work well if you have a lot of sales transactions and you don’t need to match payments to invoices.

There a couple of different add-ons that will do a much better job of importing your PayPal transactions into QuickBooks.  Some of the features of these products are mapping to more than one account, creates separate line items, inventory and eBay management, etc.  To read more about these products check out Big Red Consulting or SimplePort.

To transfer funds to or from your PayPal account, you would do this just like you would if you were transferring funds from any other bank account.  Go to Banking > Transfer Funds.  And finally, before you do anything, MAKE A BACKUP!

Posted in Quickbooks. Bookmark the permalink.

About Jo Ellen Peters

Jo Ellen Peters is the owner of Top Notch Bookkeeping and an Advanced Certified QuickBooks ProAdvisor. She has over 20 years experience in bookkeeping and payroll, with 14 years at a CPA firm working for clients in a variety of industries. She attended college at Marshall University in Huntington, WV, is a member of the American Institute of Professional Bookkeepers and is a Certified Quickbooks Consultant for The Sleeter Group.

41 Responses to QuickBooks and PayPal

  1. Ralph says:

    Hi
    What method works when your business purchases thru Paypal? When I import the iif file into QB I put it into a Bank Account called Paypal. The problem is Paypal draws from our business account, business credit card, Paypal Master Card and Paypal funds. We have to go in the “Paypal” bank account and under the “Expenses” tab it reads “Paypal Expenses”, if paypal drew from another account we leave the Paypal Expenses alone and go to the QB bank account it drew from (like bus account, Credit Card etc) and enter the expense there. If it drew from Paypal funds we change the Paypal Expenses (in the Paypal bank account) to whatever expense account the item was for (office supply etc) . Is there a less messy way of doing this, it’s starting to make my head hurt! I saw the “Big Red Consult” PayPal to QuickBooks Link application ($79) but I think thats for sales.

    Thanks for any help

    • Hi,
      I can see where that would be chore, especially if you have a lot of transactions. Big Red Consulting does allow for importing your expenses into Quickbooks and will allow you to pick multiple expense accounts before the import. Here is a link to the page that describes how to set up your spreadsheet. If you scroll down the page, there is an image of what your spreadsheet can look like. They also have free trial so you can see if this will work for you before you purchase.
      http://www.bigredconsulting.com/AboutCreator.htm

    • David says:

      Paying PayPal for my transactions -purchase orders I process for my partners website / whose company I represent in N.America is making my head heart as well. I need a simple solution or will pay for a phone or skype hand-holding session to help me set it up.
      Help! I will keep reading in the meantime.

  2. Phil Saviano says:

    Your tutorial is very helpful. Thanks! But what to do when there is a shipping charge?

    I run an online store which was recently integrated with QB Pro 2012. I have never used QB prior to a few weeks ago, so I am on a very steep learning curve. I am trying to learn the system and rules to do things properly from the beginning, to save “re-do” time in the future. I am stumped on this particular question:

    Some customers prefer to order products over the phone. I have a sale now for several inventory items, plus a shipping charge, all paid through PayPal.

    How do I create the Sales Receipt?

    I know how to deposit the payment into my PayPal Income account. And i know how to “write a check” to transfer the PayPal fee to a separate PayPal Fee Expense account.

    How do I handle the shipping? Do I include the shipping charge on the sales receipt, since shipping was part of the total price that customer paid?

    If yes, then I believe I have to next take it out of the PayPal income account, and put it into a Shipping Income account?? And then once the package is shipped, post the shipping cost to a Shipping Expense account?? Is this correct?

    And do I have to split the PayPal fee into one part for the inventory items purchased, and one part for the shipping charge?

    If I don’t include the shipping charge on the Sales Receipt, then what do I do with it???

    I’ve spent about 8 hours today trying to sort this all out, and I’m still confused. I don’t find this particular problem addressed in and of the on-line forums or tutorials. Can anyone help? I have spent most of the weekend researching this, posting on forums, reading books, and I cannot find the solution.

    • I’m sorry to hear you spent so many hours trying to figure this out. Hopefully I can help.

      If you are importing your PayPal transactions into QuickBooks, you are already posting all your sales to an income account, and any expenses to an expense account and the deposit to the PayPal bank account. You cannot create a Sales Receipt in QuickBooks when using PayPal’s import because a Sales Receipt will also post to your income account. If you need to create Sales Receipts you should check out one of the two add-ons I referenced in my post. They will allow you to map more accounts, including shipping. Hope this helps.

      • Angela says:

        We are manually entering PayPal orders, processing fees and shipping charges but only once per month. After getting monthly summary report from PayPal we create an invoice at end of each month. I’ve created “Other Income” account for Prepaid Shipping and created Merchant Fees as Selling Expense. Initially I created sales receipt for total orders since we’re not billing customer (invoice) as he/she has already paid for merchandise. But then co-worker asked how we’d apply payment? I’m not a Quickbooks expert but I’m not a novice either. Admittedly I’m confused about the banking end of recording sales from PayPal, Amazon, etc. Would appreciate any advice.

        • Hi Angela,

          Sounds like you are doing your manual entries correctly. As you stated there is no need to create an invoice since the customer has paid at the time of purchase. The sales receipt is the correct way to record your sales. This credits your income accounts and credits either your PayPal bank account or Undeposited Funds, depending on how you have your preferences set. There are no invoices to apply payments to. You are recording the payment at the same time as the sale when you use the Sales Receipt. If you look at the flow chart on the Home Page you will see that the Receive Payment option comes after the Create Invoice. You only apply payments when you use the Receive Payment option to record a payment received from a customer who is paying an invoice.

          Hope this helps, please let me know if you have more questions.

  3. Hello Jo Ellen, thank you for the explanation. However, I’ve been having difficulty with all the small PayPal fees going back and forth when money is received, money refunded, and even merchant fees. I have been entering PayPal manually and it gets confusing as to how to enter the small deduction of money fees PayPal charges out of every transaction. If I download or import my PayPal transactions (history) directly into QB, will things automatically go where they are supposed to and I can stop creating sales receipts, entering credit memos, etc.

    Is it like a real bank….when my auto load is paid by BOA, I see an entry in my QB at home. Does PayPal work like this if it is integrated with a business?

    Thanks

    • Hi Gina,

      You can download your PayPal history into QuickBooks as an iif file. You would save the file to your computer, then you would import the file into QuickBooks. The transactions will be imported into the three accounts you have named, and they need to be exact. One will need to be a bank account, preferably a PayPal named account, an income (revenue) named account, and an expense named account. What will happen when you do an import for a sale of $500 with a $10 fee, the PayPal account will be debited with $490, the income account will be credited with $500 and the expense account will be debited with $10.00. You can only use three accounts if you are entering directly from PayPal, so you will have to do a journal entry to reclassify the fee from the expense account to the appropriate expense account. You don’t have to enter sales receipts, customer’s names will be added to the other names list. You can move them to your customer list later. An add-on product that I mentioned in my blog may be a better choice for your business since you probably have a number of PayPal transactions and you could have more control over how you would want to import your transactions.

  4. Elaine says:

    First of all I just want to let you know how much I appreciate your blog and great information. I am in the beginnin process of importing via bigred into my quickbooks but here is my question. I am sure this depends on how I set everything up.
    Our members pay via paypal and each member will be shown as a receivable in my quickbooks. We transfer the $$ from paypal to our bank account about once a week. I download the bank information into quickbooks. How do I avoid a duplicate deposit amount. If I make it undeposited funds – how to coordinate the deposit? Sorry, just confused and want to make sure that I set it up correctly. Thanks again, Elaine

  5. Bill Robertson says:

    I just purchased Accountant edition 2013 and I an frustrated as hell. I send email invoices as an attachment .pdf file along with an email via my email address. I want to add a PayPal link to my .pdf invoice which I creat in Quickbooks and in most cases with my customers it’s a memorized invoice. Can I do what I want to do. I was on the phone earlier today with Business Applications in India and was told it can not be done!

  6. Dbacker8 says:

    Thank you!! This method of entering PayPal sales in QB is so much easier than anything else I’d tried. I had been pulling my hair out trying to get PayPal reconciled in QB, and this method makes it easy. THANKS!

  7. Bill Robertson says:

    I’m still waiting for a reply of my 10/13 message, any suggestions??

  8. shaloo says:

    PayPal transfers from account to the bank account show sometimes only after a couple of days.
    PayPal iif file that was imported is missing some important files.
    Refunds do not show at all on the iif file.
    I need advice as to how to record all of these transactions.

    • If you are just importing the .iif file that is created by PayPal, you are only going to import the payments that you received from your customers and payments you made to your vendors. Nothing else will be imported. Transfers between PayPal and your bank account will not be imported. I didn’t know about the credits. If you are also downloading your bank statements, the transfers will show on them and you can add them to your QB file from that download. Just debit or credit the PayPal bank account.

      If you need more functionality on your PayPal import, you may want to check out either of the two companies I mentioned in my blog.

      Hope this helps and Good Luck!

  9. Janice says:

    I have PayPal entered as a payment account but I cannot find how to enter a payment to a supplier in Quickbooks. I had no money in my PayPal account and transferred the amount for the purchase from my bank account when I made the purchase. The transfer to PayPal is showing, but there is no debit for the purchase. How do I enter the purchase and have the money come out of my PayPal account?

    • Hi Janice – Do you have PayPal set up as a bank type account? When you make a transfer transaction in QB, your checking account will be credited and your PayPal will be debited. To show the expense from the PayPal account, go to Write Checks and choose the PayPal account as the account to use. Enter the check details and save. This will debit the expense account and credit the PayPal account. Hope this helps.

  10. Connie Barron says:

    I manage a Homeowener’s association and the Board had just recently decided to give PAY PAL a try. We bill once a year and I have the invoices set as a memorized transaction to populate at a particular time of the year. This year we used 2 board memeber to test the Pay Pal system. So far so good…invoice went out, money came in. I moved the money to our Bank Account from Pay Pal manually. Now the bank account has a deposit that I have to apply to an invoice which has already been created. The way I see it, I will have two deposits if I use a Bank account in QB called Pay Pal and process the invoice as usual. How can I pay this invoice and not have two entries to reconcile on the Bank Statement? As it stands now, I have a deposit in the Bank and the unpaid invoice for my customer.

    • Hi Connie – In QuickBooks, record your invoice and receive payment for the invoice, at the bottom of the payment screen mark deposit to PayPal account. This will debit your PayPal account and credit accounts receivable. Your checking account won’t show the deposit until you transfer it from the PayPal account. Hope this helps.

  11. Angela says:

    Hi Jo Ellen: Thanks so much for your blog posts. I am trying to streamline our receivables and not sure if this is going to save time for us or not – most of our members pay their annual fees through paypal and then each day we have to reconcile the payments with our back office accounts (very time consuming) – this past year we began using QB online to track our receivables – those members who have not sent in payment yet, payment plan pymts, etc. and we offer payment online thru those invoices by check or card. We also have to reconcile those to the member accounts. etc – I was hoping that there would be a way to import the paypal payments so that we do not have to post those to QB as well but not sure if they will match up to the customer accounts or not (assuming not?) So I am looking into changing over to taking all of our payments thru intuit which is a little higher rate but will save us in the long run on labor hours? Any thoughts or advice?

    • Hi Angela – Thanks for your kind comments about my blogs and I’m glad you enjoy them. You can use PayPal but it’s a long manual process, and you would need to put your PayPal email address on each invoice you wanted paid with PayPal. Baystate Consulting has an add-on product for QuickBooks Online. They offer a free trial if you want to give it a try. If you aren’t already using Intuit Payment Network (IPN) I would definitely add that as a payment choice. Not only does it integrate with QuickBooks Online, it adds more payment choices for your members.

      Jo Ellen

  12. david says:

    great article, does the paypal history download and upload to quickbooks process update the inventory as well?
    thanks,

    David

    • Hi David,

      No, your PayPal import is not going update your inventory. All the import does is post dollar amounts to the bank account, an income account and an expense. To adjust inventory you would have to use items and the PayPal transactions don’t use items, it only uses the general ledger account number. Does the shopping cart on your website support inventory? Also, check out Big Red Consulting or SimplePort, they both import PayPal transactions and support inventory.

      Hope this helps!

  13. Jo Corrigan says:

    Very informative, immensely helpful! Thank you!

  14. YouTube says:

    I am truly glad to read this weblog posts which includes plenty of helpful facts,
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  15. Krista says:

    Hi! Just one simple question, I download my transactions from Paypal, my Bank Account, and Credit Cards. This works extremely well and is very simple for me. My only issue when accepting my transactions is that I cannot figure out how to “Assign/Match” and “Categorize” my refunds to customers from Paypal. I have scored the web to find an answer. Everything is uploading correctly and my books are completely reconciled. Only, I don’t want to wrongly assign a transaction. What expense account would this go into?

    • Hi Krista,

      Refunds to customers will be a debit to sales. Or you could set up a contra-sales account for refunds if you want to see it listed separately on the Profit & Loss.

  16. steve wiggs says:

    Jo Ellen,

    Thank you for posting this. One thing that isn’t address is sales tax. Our online store, which is using PayPal as the CC clearing house, charges tax (as all online stores are required these days — yes, I know this is a can of worms).

    What I’ve found is, a CSV export will maintain the sales tax in a separate column. However, the IIF report format simply bundles is all up and there is no reference in the file that the item was taxes and what that amount is.

    Have you a recommended process to deal with this?

    • Hi Steve,

      Unfortunately sales tax is a pesky issue which PayPal doesn’t address with their export and the .iif format cumbersome. My recommendation would be to go with an add-on product where you can define the fields you need before you import into QuickBooks. Some add-ons are a one time purchase and others are a monthly subscription fee. They also have a trial version so you can choose the product that fits your situation the best.

  17. Amanda says:

    Hi! First of all, thank you for all your help! Secondly, I was hoping to get your help with something. I have looked into purchasing an add on to help me import pay pal transactions into quickbooks, but I think for now I still would like to do it manually. if I do it manually is there a way for the entry to adjust the inventory I have on hand? Thank you!

    -Amanda

  18. krista says:

    New to QB. Downloaded paypal transactions, but still can’t figure out how to match them up with payments that are in undeposited funds account. When I open a sales receipt, I have the option to ‘deposit to’ paypal. in doing this, it seems to me that it will: be deposited either in to both ‘undeposited funds’ account AND paypal, or it wil be removed from undeposted and go into paypal, which would mean that it is recorded twice in paypal account. Can you enlighten me? Learning as I go, and I’m stumped on this part. Thanks!

    • Hi Krista,

      You only want to import PayPal transactions if you have not already manually entered them in QuickBooks. Unlike importing transactions through the Banking Center there is no “Match” feature. If you are manually entering a sales receipt and recording the deposit, and downloading from PayPal you are entering the sales twice. Hope this helps, if not please feel free to call me.

  19. Cheryl says:

    Help, having a issue with Paypal and QB, We use the Paypal Card (debit card) for a lot of items, Paypal will post Authorized funds held (debit) and then a debit card payment completed (debit again), then a funds released (credit) . So at the end of the month sometime to still have funds held, But the next Month if you credit the amount you wont balance, But you can see the debit/credit to wash. I think I’m missing the boat on this one.

    • Hi Cheryl,

      If I am manually entering transactions from PayPal then I don’t enter transactions that are being held. I only enter the transactions that have been approved, ones that I have actually received the money for. If you do want to enter all transactions then set up a Holding account for PayPal. Set it up as a bank type of account. Then when you have a transaction that is being held for authorization you would debit the holding account and credit an income account. When the account has been approved you would debit your PayPal account and credit the holding account. At the end of the month you may have a balance in the account because of transactions that have not yet been approved.

      Hope this helps.

  20. Donna says:

    Hello,

    I am treasurer of a small non-profit and we use the online version of quickbooks. Normally our members pay dues by check or cash, but we just started using paypal as an option. We have buttons on our website to pay for membership and an upcoming function. Since we are a non-profit we raised the price on the dues if using paypal to cover the fees. I setup a bank account for paypal in quickbooks. Since I do not have many transactions I would like to manually enter the transactions that I see on my paypal statement as a regular deposit. We have an income account for dues. How do I apply the transaction fee and if we have a few cents left over from the transaction where should I enter that amount? I have already transferred the money in paypal to our checking account.

    • Hi Donna,

      Set up an expense account called PayPal expenses. If you have a transaction for $400 and $5 is the PayPal fee your entry to record this will be a debit to PayPal for $395, a debit to PayPal expense for $5 and a credit to dues income for $400. Since you are adding the PayPal fee to the dues (a reimbursable expense), you don’t want to increase the dues income by the fee amount, so set up an income account called PayPal Income. Your transaction entry will then be a debit for $400 to PayPal, a debit to PayPal expense for $5, a credit to dues income for $400 and a credit to PayPal Income for $5. The first example the debits and credits will add up to $400 and in the second example the debits and credits will add up to $405. You could post your PayPal fee to just one account rather than two, but a reimbursable expense is considered an income account. It will have the same net effect on your net income regardless of whether you use one or two accounts. As for the few cents you have left over, post them to the PayPal fee expense account.

      Hope this helps!

  21. Leslie Olsen says:

    The question I have is how you reconcile paypal?? I manually enter but never can get it to reconcile and I am not sure why. I am new to paypal.

    • Hi Leslie,

      I print the transaction report for the month that includes the balance. The ending balance for the last transaction for the month is the amount I use for the ending bank balance for the reconciliation. The beginning balance will be the balance after the last transaction for the previous month. Then I mark off all the transaction for both the debits and credits. Usually this will result in a zero difference, so my PayPal account is reconciled. If you are not getting a difference of zero, make sure the beginning balance is correct, make sure all transfers have been entered, make sure all the fees have been entered. If you are entering the transactions from your PayPal statement, make sure everything has been entered correctly. You should balance if all these steps have been performed.

      Hope this helps, if you need more assistance please don’t hesitate to contact me.

      Jo Ellen

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