Paypal and QuickBooks
I will assume that you are trying to get all of your Paypal transactions into QuickBooks Online or QuickBooks Desktop version, well there are two methods of Paypal integration in QuickBooks Online and there is one method by which you can treat your Paypal in QuickBooks desktop and in that method you have to import all of your transactions through CSV file you get from your Paypal Account (will explain it in another article).
Although QuickBooks is mostly used software in the western hemisphere most apparently in US, CA and UK and also in Australian countries in small and medium size business industries despite of QuickBooks Paypal has its own importance as it is the most convenient Payment method, so when you pay your expenses through Paypal and receive your Income through Paypal than you must make this “Paypal” part of your business Accounting, we can say that Paypal is a checking account through which you can easily pay your amounts, One of the most important factor of using Paypal is there honesty!.
In this article we will know how we can integrate Paypal into our QuickBooks Online Account (for desktop version use my other article),
There are three ways through which you can enter your Paypal transactions into your QuickBooks Online Account, one way is unintegrated method can be used in both desktop and Online version while other two are integrated with some limitations and are used in QuickBooks Online,
- You can download all the transactions of Paypal in a CSV or IIF file through “Paypal History” page and can import them manually into your QuickBooks (I will explain this method in my another article).
- The most likely and recommended method of Paypal Integration and synchronization is to treat your Paypal Account as a Checking Account as your other checking accounts.
- QuickBooks has introduces an app to integrate Paypal with QuickBooks Online Account names “Sync with Paypal”. It is also a way to integrate your Paypal into your QuickBooks (Online version only).
Before telling you about any of the method let me tell you first which method good for you and which method I recommend and why? Well everybody have its own concerns but being a good accountant I must say that I have some comparison between method 2 and 3 which is worth knowing for a QuickBooks Online User,
Both of the methods are highly integrated but there are some reasons because of which one have to choose between them because the differences are huge in nature or in magnitude.
Let’s take three variables to examine what way you are going to adopt and what are you going to achieve when you take that way.
Sync with Paypal
In case of Sales Transactions “Sync with Paypal” has more accuracy when it sync the data into the QuickBooks than Bank feed mechanism.
Banking feed mechanism
In Bank feed mechanism QuickBooks only sync the transactions with “Net” amount and neglect the “Paypal Fee” which is charged on every transaction of Paypal. You have to manually enter those charges lately.
One Advantage that Sync with Paypal have is Detailed Import of Transactions:
For every transaction Paypal charge a fee which is located in Column with the name “Fee”. “Net” Column shows the amount that you paid for your product or services purchased and “Gross” show your total expense including your expense charge and “Paypal fee”.
One most amazing feature of sync with Paypal is when you sync your QBO account with sync with Paypal it creates a Payment and Receipt in QuickBooks and show each and everything in transaction separately like as “Net” is the actual amount that was charged for the product or service you purchased so the app will put that amount separately as your expense with items or services purchased and Paypal fee is entered automatically into a separate account by the app as “Paypal Fee”.
Sync with Paypal
“Sync with Paypal” is quite poor in terms of categorization it categorizes all the transactions whether income or expenses by its own (automatically) but it put them in its own made default categorize, making P&L meaningless.
Banking feed mechanism
Bank Fee Mechanism allows you to (manually) categorize expenses according to your own Chart of Accounts and you can put transactions according to your own categorize making P&L meaningful.
In the app settings page you will see how the app will treat different types of transactions.
You will see in the dropdown list of each and every category that there are some default made Chart of Accounts that the app will use to categorize your transactions,
But here I will quote “Automation is not good for your business health!” as for sometimes doctor advises heart patients to not to jog fast so you become deprived of oxygen resulting in heart attack. Now for a moment just think that all of your transactions have been entered for a say Expenses transactions for the year but according to the categories (which is oxygen for your data) made by “Sync with Paypal” not by your own made Chart of Accounts which will lead to be a data which is meaningless as in your P&L you will not find how many for each expense you spent this year it will be only the case when the transactions are entered in Chart of Accounts developed by you or your Accountant. That’s why I am not in the favor of “Sync with Paypal” although it allows you download or sync all of your transactions at once, it will also don’t categorize “Transfers” well and put all the transfer related information in an account “Paypal Transfers”. Leading to a misleading information regarding your Paypal Transfer, Expenses and Sales Transactions.
For this I also want to share a case study that I have taken from “community.intuit.com”
Sync with Paypal
“Sync with Paypal” don’t reconcile balances. Some people accuse that it is the “live feed” it didn’t require reconciliations but Checking account is also the live feed why we reconcile them. So it didn’t allow you to reconcile.
Banking feed mechanism
Reconciliations in QuickBooks Online for a Checking Account is all you need to know to reconcile the “Paypal” if you are treating your Paypal as a Checking Account.
What to Implement?
Knowing a lot about two methods of “Paypal Integration” I must say that now you have the knowledge to decide which one to adopt for your QuickBooks Online Account, well before telling how to setup one of ‘em I must share you some limitations that will also help you in deciding which one to choose to integrate Paypal with your QuickBooks Online Account.
Okay I must tell you the limitation so of “Sync with Paypal” first because if you read all this article and at the end you find that you can’t use it because of its limitations than it will all go in vain so I must discuss here them first and you can decide to which direction you must go,
If you are a digital seller or an Affiliate Marketer than this app is not an Option for you please read first two limitations and then decide.
- At this time it is unable to download data from Shopify and BigCommerce, so if you are a digital product seller or have an online web stores on these platforms you should not download this app.
- It will only work in USD so if you work in multiple currencies than it is not a good option to integrate Paypal for you.
- One of the biggest limitation of this App is it will not allow you to add multiple accounts, so if you have multiple accounts in Paypal than you should try the other way and forget this app.
- If the same Paypal account is connected to 2 QuickBooks accounts than first link will be dropped.
- If the same account is already integrated in bank feed than you have to disconnect that from Bank feed.
Sync with Paypal:
QuickBooks has introduced a Paypal App names Sync with Paypal into the QuickBooks Online and with the help of this app you can directly download your transactions from your Paypal account and Sync the account for the future transactions, well it is easy to say, but there are some limitations that reside inside this Paypal App. (you must read the article from start if you don’t know how this app will treat your data).
Getting the Sync with Paypal:
It is an easy setup as Sync with Paypal is totally free,
You just have to click on Apps you find at the end of your left side and Paypal is one of the Apps you will find in the first page.
In this window you have to authorize QuickBooks to download the app into your QuickBooks Online Account. Once you authorize the app to get installed than it will start the process and guide you throughout the process.
After you authorize the App to get installed into your QuickBooks Online Account you will have to log-in to your Paypal account.
After you logged-in to sync with Paypal you will see the above highlighted options. If you don’t pick the settings of Past transactions the app will only sync the transactions from now on and will not sync even the existing transactions so you must Change the Past transactions settings,
You can import transactions up to 18 months in the past.
In the above given screenshot you can see that Paypal will allow you to enter all the “Credit” transactions into One account which I will not allow if I want to make my data meaningful.
Well! After having all this knowledge I must say that you are completely able to Use this app and also can make decision whether to use it or not,
I believe that you know about the “Sync with Paypal” so now is the time to move on to the next option which is:
Paypal as a Checking Account (Bank Feed Mechanism of integrating Paypal in QBO):
Before telling you about this option of Paypal integration I must say that you have integrated you other checking accounts inside QuickBooks Online Account so it is same as you are managing your other Checking Accounts, and same rules and guidelines will apply to manage Paypal in QBO well I will discuss all the things here to compare the both options,
- Go to Transactions
- Select Banking and click on Add Account
- After that a search bar will appear in which you have to write the name of your Bank.
- Write Paypal in the search bar you will see the following things,
In the highlighted area you will see that QuickBooks is integrated with Paypal US, UK, CAN and Australia. And it is showing different search results for each of them,
You just have to sign in to your Paypal Account through Add an Account button in Banking from the Transactions menu of QuickBooks Online after that it will sync all of your Paypal transactions in to your QuickBooks Online Account and you have to Categorize them manually (but believe me it will be far good than the categorize that “Sync with Paypal”) made as you categorize transactions of your other checking accounts.
Remember that once you categorize a transaction in QuickBooks Online in the future QuickBooks Online will categorize the same transactions by matching the transaction description and you just have to hit the button “Add or Match”. Now you can easily reconcile your Paypal Accounts as it needs reconciliations and is a vital part of determining your business cash and cash equivalents situations or you can say position.
You have learned the two options of integrating Paypal with your QuickBooks Online Account and you also know that I prefer Bank Feed Mechanism but I must say that you have to take your decision as it will be according to your data structures and needs or you can say importance of Paypal information, if your Paypal information is not a material part of your cash positions than you can also use “Sync with Paypal” as it will automate the process but as I have said if your material transactions in the Paypal than you must adopt the bank feed mechanism and manually do the categorization or ask your bookkeeper to do so and don’t forget to enter the “Paypal Fee” manually if it doesn’t get entered through the sync.