Recording PayPal merchant fees in your bookkeeping software

Hands up if you are an online business that accepts payment through PayPal or your Internet merchant account. Do you know how to enter PayPal transactions and their fees into your bookkeeping software?

If you are using QuickBooks or MYOB the process is very similar. Firstly, you need to decide how to treat your PayPal merchant account. You need to decide if you are going to treat it as another bank account and reconcile it each month or if you are going to create journal entries to record the transactions?

My personal preference is to create another bank account and then reconcile it each and every month (you can stop groaning now). But as any user of PayPal will tell you, they take their cut of the payment straight away and so while you have money in your PayPal account, its not for the full amount. How do we reflect this in our books because the PayPal fees are a business expense??

Entering PayPal transactions is a two step process when you need to firstly create a separate bank account for your merchant account. When you record your payment in your bookkeeping software, make sure you do the following:

MYOB Accounting Australia

  1. Click on Sales.
  2. Click on Receive Payments.
  3. Make sure you click on Group with undeposited funds at the top of the window.
  4. Allocate the payment to the correct invoice and click record.
  5. Now click on Banking.
  6. Click on Prepare Bank Deposit.
  7. Click on Deposit Adjustment and enter the details of PayPal’s fee. Make sure you allocate the Tax code of N-T FRE (for the Aussies).
  8. Record the adjustment. You should see it beneath the deposit paid by your customer/client.
  9. Tick both transactions and note that the total deposit amount has been reduced by the PayPal fee amount.
  10. Click record and reconcile the account as usual!

QuickBooks Premier Australia

  1. Click on the Customer Navigator.
  2. Click on Receive Payments.
  3. Enter the details of the payment and ensure you Group with other deposits at the bottom.
  4. Click save and close.
  5. Click on Deposit.
  6. In the Make Deposits window you will see the details of your customer’s PayPal payment. Underneath this payment enter the name (or account number) of the account you are using to track your merchant fees in the From Account. In the Amount column, enter the PayPal fee as a negative figure. The Deposit subtotal should be the net amount from your PayPal statement.
  7. Click Save and Close.
  8. Reconcile your PayPal account as per usual.

Now tidy up those PayPal transactions… no excuse… off you go!

9 Responses to “Recording PayPal merchant fees in your bookkeeping software”

  1. In MYOB (Aust) the fee gets recorded as FRE not N-T. N-T is a non BAS reporting tax code that is used for non reportable transactions. Fees of any kind are reportable, even if they originate overseas.

  2. Thanks for the clarification Sue, I’ve updated my post.

  3. Thanks heaps for this very simple explanation to solve a huge problem for me.
    Many Many Thanks!!!

  4. Thanks for the helpful post!

  5. I just Googled this topic and found your very helpful post.immediately! Getting MYOB sorted now. :-)

  6. What about entering pay pal fees i pay to the supplier, how do i enter this in purchases?

  7. What software are you using?

  8. For pay pal setup in myob.
    1. Can you set pay pal as a supplier. Set up codes for transactional fees as expense. Pay pal automatically debits from our credit card when we use pay pal to pay overseas suppliers. Is this ok?
    2. When customers pays us to our pay pal account. In the past, we have record it as cash sale into petty cash account after the fees are deducted by pay pal. Would it be better for tracking purposes to set up petty cash and pay pal asset account separately. In the pay pal account when we record in myob it will be recorded as actual credit and debit of the fee on the same date. We charge all our customers 2.5 % transaction fee for purchases made using pay pal. For the customer invoice it will have both item purchased and item transactional fee. We do receive money on that invoice to the pay pal asset account then do spend money on the same date pay pal fee.I
    3. How do we record if we transfer funds from pay pal to our cheque account?

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