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PayPal + QuickBooks Online – Best Practices

One of the most popular payment processors for WooCommerce is PayPal, allowing your customers to place a WooCommerce order and pay you with PayPal. Our QuickBooks Online Sync integration has excellent support for PayPal, and when configured correctly both in our settings and in QuickBooks Online – you can achieve seamless accounting for PayPal sales.

Connecting in QuickBooks Online

The most crucial step to get right when working with PayPal is correctly connecting your PayPal account to your PayPal bank account in QuickBooks Online.

There is a right way and a wrong way to do this. Once you have added your PayPal Account as a bank account in your Chart of Accounts, visit your Banking tab in QuickBooks Online to connect your account. 

When you first connect your PayPal bank account in QuickBooks Online to your PayPal account, you’ll be presented with a screen asking how you’ll be using PayPal. This screen is poorly designed by QuickBooks Online, and represents a right and wrong method to choose from – see the screenshot below. You should choose the “Bank Feeds” option, not the “Sync with PayPal” option – to correctly connect to PayPal, so it does not automatically record sales, and instead just queues transactions for you- just like a normal bank feed.

Here’s a bit more detail on this:

Wrong: The wrong way to connect QuickBooks Online with PayPal is using the PayPal Sync app, which automatically records all transactions arbitrarily in QuickBooks Online. This creates unintended customers, records sales wherever it feels like it, and has no regard for products and inventory. We have seen this app screw up countless QuickBooks Online companies for our users, and it has a 2-star rating in the QuickBooks App Store. Whatever your situation, we never recommend using this method.

Right: The right way to connect QuickBooks Online with your PayPal account is using the “bank feed” method, where QuickBooks Online pulls PayPal transactions (both sales, fees and expenses) into a “queue” in your Banking tab of QuickBooks Online. These transactions sit here in the queue until you add, match or exclude them. Although they are not automatically recorded, they are automatically pulled into the queue on this page for your convenience. Once syncing is set up with our integration – in a perfect world, you would simply match every PayPal sales transaction in this queue to the invoice or sales receipt synced over in real time by our integration.


Mapping in WooCommerce

To map your PayPal gateway in WooCommerce to your PayPal account in QuickBooks Online, simply visit MyWorks Sync > Map > Payment Methods. This page shows one section for each WooCommerce payment gateway you have activated, and you’ll be able to choose a QuickBooks Online bank account to record payments to for WooCommerce orders paid with your PayPal gateway. Read more about mapping here.

Syncing/Handling Fees

Now that PayPal is correctly connected in QuickBooks Online, the most common question we’re asked is how best to handle the accounting for PayPal fees. With our integration, you’ll have two options.

Handle fees in QuickBooks Online (recommended): Once you’ve connected QuickBooks Online to PayPal as instructed above, PayPal will pull sales transactions and their fees (as a separate line item), as well as expenses, into the bank feed of the Banking tab of QuickBooks Online. From here, it’s very easily to simply click Add next to the fee in the Banking tab. QuickBooks Online will remember the expense account you choose to add this fee to for future transactions, so you’ll be able to simply click Add for all future fees, or even add a Rule in QuickBooks Online to automatically record these fees. This is the recommended method, as it’s as simple and accurate as it gets.

Syncing through our integration: When you configure the payment method mapping in our integration in MyWorks Sync > Map > Payment Methods, you’ll be able to choose which QuickBooks Online bank account to record payments to for orders placed in WooCommerce paid by PayPal. If you click the Show Advanced Options button in the top right, you’ll be presented with a few more options. One of these options includes syncing transaction fees. When turned on, then when our integration syncs a WooCommerce order and payment over to QuickBooks Online, it also checks to see if the PayPal gateway reported a transaction fee back to WooCommerce. If it did, our integration creates a separate Journal Entry in QuickBooks Online recording this fee coming out of the QuickBooks Online bank account and going into the Expense account you choose in MyWorks Sync > Map > Payment Methods. This option is stable, but involves many more steps than simply recording the transaction fee in QuickBooks Online.

Updated on November 1, 2017

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