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.

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

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.

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:

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.

I want to show you a different view of this transaction which I’ll do by clicking on “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.

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.

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.

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.

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.

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.

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.

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.

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.

We are not affiliated with PayPal and do not provide technical support for Paypal. Please follow this link for PayPal support questions: https://www.paypal.com/us/smarthelp/contact-us

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