How To Properly Enter PayPal transactions into QuickBooks Online

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In this tutorial I’m going to show you how to avoid some common mistakes people make when entering their Paypal transaction into QuickBooks Online.

In this tutorial I’ll be using my Paypal account and a sample QuickBooks company file I use for teaching.

Paypal Transactions in QuickBooks

We’ll start by looking at credit card transactions from a bank account. You can get to this two ways in your own account.

From the main screen you can click on the bank account you’d like from the Bank Accounts box on the right side of the screen.

Opening a bank account in QuickBooks Online

You can also click on Banking in the left-hand navigation menu and select Banking.

Banking Menu in QuickBooks Online

In this example I’m using a $50 payment for training from a company called Score. The payment was made with a Bank of America credit card but was processed through Paypal. You can tell this was processed through Paypal from the Bank Details within the transaction.

Paypal transaction Bank Details

In many people’s QuickBooks accounts I’ll see these Paypal transactions entered with the Vendor/Customer stating who the money went to and the category being what the transaction was for. As you can see here:

Paypal transaction with incorrect vendor/customer and category information

The problem with this method is that it’s not exactly what occurred. Let’s take a look at the Paypal register in Paypal itself for more details.

Paypal Transactions in Paypal

Within Paypal click Summary in the top menu and you’ll see a list of your recent transactions. I have two $50 example transactions at the top of my list.

Recent Paypal transactions

I want to show you a different view of this transaction which I’ll do by clicking on “Activity (including balance & fees).”

Paypal link to Activity (including balance & fees)

In this view you can see that this purchase was from Score Assocation for $50. I didn’t pay a fee and I have a balance of $22.26. The balance is the important part.

Paypal transaction data

That balance of $22.26 is the amount of money I have in my Paypal account. 

Most people don’t think of Paypal as a bank account, but it is. You should think of it like a checking account that has  a balance of $22.26 within it.

From the summary page you can see that balance of $22.26 in the upper left-hand corner.

Paypal summary page showing available balance

But, their are two $50 transactions and the balance remains at $22.26. What’s going on?

To find out I click on the Transaction Type drop down and switch from “Balance affecting” to “All transactions.”

Now those two transactions have a plus sign to the left of the date.

When I click on the plus sign I can see the full transaction.

From this view we can see what actually happened. There was a withdrawal from my credit card of $50 that went to Paypal and then from Paypal to Score. 

It should look the same in QuickBooks but at the moment it looks like it went directly from my credit card to Score without Paypal being involved.

If I view the Paypal register in Quickbooks I can see the balance is $22.26 but I don’t see the transaction from Score.

Paypal register in Quickbooks not showing ALL transactions

When reconciling Paypal in Quickbooks you should log everything that you see under All Transactions in your Paypal account.

This may seem like a lot of extra work and like you’re recording a transaction twice. But, the reason you want to do this is to make sure you’re not missing any expenses or revenue.

Anytime you have a bank account of any type you want to be able to reconcile that account and verify that ALL of your transactions are recorded and nothing is missing.

Properly Handling a Paypal Transaction in QuickBooks

I’m going to go back to the credit card’s register in Quickbooks and delete that $50 Score transaction.

Deleting a transaction in QuickBooks Online.

A warning pop-ups letting me know this transaction was downloaded from my bank’s records, double-checking that I actually want to delete the transaction, but also letting me know  that the transaction will be back on the  Online Banking page. I do want to delete it, so I click Yes. 

I’ll now click on Banking in the left-hand menu and Banking again to get to that Online Banking page. I can see the transaction is back to be reviewed.

I’m now going to change this transaction to a transfer as it’s being transferred from my Bank of America credit card into Paypal.

Recording a transfer in QuickBooks Online

Manually Entering an Expense

I don’t have my Paypal account connected to this QuickBooks file so I will manually enter the expense.

To do this I click the New button in the upper left hand corner then select Expense from the Vendor column.

Manually entering an expense in QuickBooks Online

I now create the expense with a Payee of SCORE, Payment account of Paypal, and I add the $50 transaction in the education category.  Click the “Save and new” button to save the expense.

Manually entering an expense in QuickBooks Online

If I view the Profit and Loss Report you can see there’s only one $50 expense even though the transaction was recorded twice. Once going from the credit card to Paypal, the other going from Paypal to Score.

Profit and Loss report in QuickBooks Online

This is because it was recorded as a transfer and how you should be handling your expenses paid with Paypal.

I hope this tutorial was helpful if you have any questions regarding Paypal transactions and QuickBooks you can send me an email me or book an appointment below.

If you’d like you can watch me walk through this process in the video below:

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11 Responses

  1. Thank you for the explanation it’s just what I needed because my P&L DID NOT look right!. It seems like my bookkeeper DID NOT create a PayPal account and put everything in my main bank account 🤦‍♀️So I’m verifying everything myself. I’m assuming this process is also done for Venmo, and would it be done for Stripe as well?

    1. Hi Faviola, Stripe, and Venmo can be handled in a few different ways. We may eventually do blogs and videos for this but for now, I recommend chatting with a different professional bookkeeper about your specific situation.

  2. That was great information. Using QBO, how would I record funds that I received via Paypal, the funds were placed on hold, and then cleared/released the following month? How do I reconcile in QBO?

    1. Hi Sheila,

      We don’t have a video explaining this. When processing income like this in QB’s you’d enter the income however you normally would (sale receipt/invoice/directly to the bank, etc.) then use a transfer to transfer the funds from the Paypal account to the checking account.
      If you’d like we’d be happy to walk you through this process you can schedule a meeting here: https://www.gentlefrog.com/meeting/
      -Jess

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