Setting up for PayPal transactions

Answer ID 34315   |    Published 12/06/2012 08:52 AM   |    Updated 30/07/2014 07:29 AM
How do I record sales made through PayPal?

If your business makes sales where customers can pay using PayPal, this support note shows you how to setup your accounting software to record these transactions.

Using MYOB Essentials Accounting?  See our support note MYOB Essentials Accounting - setup up for PayPal transactions.

PayPal transactions are much the same as other transactions which involve a merchant fee. In other words, the merchant (in this case PayPal) takes a percentage share of the transaction for providing the credit facilities. In our example, a $100 sale is received through PayPal, from which $2 is paid to PayPal, resulting in a net sale of $98. You will need to record both transactions in your software, in other words a customer receipt of $98 and a merchant charge of $2.

The tasks in this support note are:

  1. Create a PayPal payment method

  2. Create a PayPal bank account

  3. Create a PayPal clearing account

  4. Create an expense account for the PayPal fees

  5. Create a supplier card for the PayPal fees

  6. Record the sale

  7. Receive the payment

  8. Clear the balance of the PayPal clearing account

Task 1 - Create a PayPal payment method

This is an optional task as you may choose to record PayPal transactions using an existing payment method. However, if you want to create a new "PayPal" payment method in your software, complete the following:

  1. In your accounting software, go to the Lists menu and choose Sales & Purchases Information then choose Payment Methods. The Sales & Purchases Information window appears.

  2. On the Payment Methods tab, click New. The Payment Methods information window appears.

  3. Enter the Payment Method, such as PayPal.

  4. For the Method Type, select Other. See our example below.

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  5. Click OK. The new PayPal payment method is now included in your list and can be selected when entering sales paid for through PayPal.

Task 2 - Create a PayPal bank account

A PayPal bank account is required to record PayPal sales against. To create this account, complete the following:

  1. Go to the Accounts command centre and click Accounts List. The Accounts List window appears.

  2. Click the Asset tab.

  3. Click New. The Account Information window appears.

  4. For the Account Type, select Bank.

  5. Enter an Account Number that suits your account list.

  6. For the Account Name, enter PayPal Bank Account or similar. See our example below.

    Image

  7. Click OK.

Task 3 - Create a PayPal clearing account

This account is required to record the PayPal fees against. To create this account, complete the following:

  1. Go to the Accounts command centre and click Accounts List. The Accounts List window appears.

  2. Click the Asset tab.

  3. Click New. The Account Information window appears.

  4. For the Account Type, select Bank.

  5. Enter an Account Number that suits your account list.

  6. For the Account Name, enter PayPal Clearing Account or similar. See our example below.

    Image

  7. Click OK.

Task 4 - Create an expense account for the PayPal fees

This account is required to record the PayPal fees as an expense to your business. This account may already exist in your software for other merchant fees, but if it doesn't, complete the following:

  1. Go to the Accounts command centre and click Accounts List. The Accounts List window appears.

  2. Click the Expense tab.

  3. Click New. The Account Information window appears.

  4. For the Account Type, select Expense.

  5. Enter an Account Number that suits your account list.

  6. For the Account Name, enter Merchant Fees or similar. See our example below.

    Image

  7. Click OK.

Task 5 - Create a supplier card for the PayPal fees

When you record the PayPal fees using a Spend Money transaction, the transaction needs to be allocated to a supplier. For this reason a supplier card needs to be created. To do this:

  1. Go to the Card File command centre and click Cards List. The Cards List window appears.

  2. Click the Supplier tab.

  3. Click New. The Card Information window appears.

  4. In the Name field, enter PayPal or similar.

  5. Click OK.

Task 6 - Record the sale

Record the sale for the customer as per normal. In our example below, a sale for $100 has been recorded for a customer who is paying through PayPal.

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Task 7 - Receive the payment

When payment for the sale is received it comprises the net payment you will receive for the sale, plus the PayPal fees. In our example the total sale was $100 which comprises a net sale value of $98 plus a $2 PayPal fee.

This is recorded as 2 separate Receive Payments transactions - one for the $98 which is allocated to the PayPal Bank Account, and one for the $2 PayPal fee which is allocated to the PayPal Clearing Account.

 

To record the payment for the sale

  1. Go to the Sales command centre and click Receive Payments. The Receive Payments window appears.

  2. In the Deposit to Account field at the top, select the PayPal Bank Account.

  3. In the Customer field, select the customer to whom you made the sale. The customer's open invoices will be displayed.

  4. In the Amount Received field, enter the net sale amount, in other words the total sale amount minus the PayPal fees. In this case it would be $98.

  5. Click in the Amount Applied column for the customer sale. The amount will be automatically applied. See our example below.

    Image

  6. Click Record.

 

To record the PayPal fees

  1. Go to the Sales command centre and click Receive Payments. The Receive Payments window appears.

  2. In the Deposit to Account field at the top, select the PayPal Clearing Account.

  3. In the Customer field, select the customer to whom you made the sale. The customer's open invoices will be displayed.

  4. In the Amount Received field, enter the amount of the PayPal fees. In this case it would be $2.

  5. [Optional - see Task 1 above] In the Payment Method field, select PayPal.

  6. Click in the Amount Applied column and the amount will be automatically applied. See our example below.

    Image
  7. Click Record. The $2 will be allocated to the PayPal Clearing Account and this will be cleared out in the next task.

Task 8 - Clear the balance of the PayPal clearing account

The final task is to clear the PayPal fees from the PayPal Clearing Account to your Merchant Fees expense account. To do this:

  1. Go to the Banking command centre and click Bank Register. The Bank Register window appears.

  2. In the Account field, select the PayPal Clearing Account. The payment made to this account in the previous task will be listed.

  3. Click to highlight the PayPal payment.

  4. In the bottom section of the widow in the Type field, select Spend Money.

  5. In the Card field, select the PayPal supplier card created in Task 5 above.

  6. In the Amount field, enter the amount of the PayPal fees - in this example that would be $2.

  7. In the Account field, select the Merchant Fees account created in Task 4 above.

  8. In the Tax field, select the relevant tax code. In our example we have selected FRE, but this may not be applicable in your circumstances. If unsure of which tax code to select, speak to your accountant or the ATO.

  9. Click Record. See our example below.

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