Reconciling PayPal in your accounts
PayPal is often booked as if it were only a payment method. In practice it is a bank account: money comes in, fees go out, balances are held in several currencies, and transfers move money to your real bank. It needs to be reconciled like a bank.
Set it up as a bank account
Create a PayPal bank account in Xero or QuickBooks Online for each currency you hold. Import the PayPal statement or connect the feed. The ledger balance for each currency should agree with the PayPal balance on the last day of the month.
What moves through PayPal
- Customer payments for orders
- PayPal fees on each payment
- Refunds, and fees PayPal does not return on them
- Disputes and chargebacks, with funds put on hold
- Currency conversions between balances
- Transfers to your bank account
Common errors
- Transfers to the bank booked as income, which counts the same sale twice
- Fees left out, so the PayPal balance in the books is higher than the real one
- Currency conversions booked at the wrong rate, which leaves small differences every month
- Held funds ignored, so the books show cash that cannot be used
Shopify orders paid by PayPal
When a Shopify order is paid by PayPal, the sale is recorded from the Shopify sales report into a PayPal clearing account. The PayPal statement then shows the money arriving. Matching the two clears the account. If you use A2X, it posts the Shopify side and you only match the PayPal receipts.
Month-end checklist
- PayPal balance in each currency agrees with the ledger
- Fees for the month are recorded
- Open disputes and held amounts are listed
- Transfers to the bank are matched on both sides
Questions about your own setup? Write to us at finance@teamsfinance.com or use the contact form.