Last night I decided I’d finally sit down to import some of my business PayPal transactions into Quickbooks. After one failed attempt I started searching online for a tutorial of sorts. Finding nothing but a few discussion board posts on the topic, I gave it a few more tries on my own. I finally went to bed with nothing but a few dozen voided journal entries to show for my efforts.

Today I finally figured a way to do it that met my needs. Since the tools I wanted didn’t seem to be anywhere else online, I figured I’d do my part to get the word out. Who knows if one day some poor soul like myself will stumble upon this post and save themselves from a messy accounting ledger. I can only hope.

The task: Import PayPal transactions into Intuit QuickBooks Pro 2008.

I run a small, home-based business. Most of my business transactions are done in person, so I have yet to develop any type of online store. Occasionally I have a customer who cannot pay with cash or check, but would like to pay with their credit card via PayPal instead. Though I’m not excited about paying the PayPal transaction fees, I would much rather win the customer (I can use all the business I can get).

PayPal allows me to download my transaction history and import it into QuickBooks. That’s a wonderful tool, but it’s not dummy-proof. I have to know exactly which accounts I would like the Transaction Total, PayPal Fees, and Net Income attributed to. The problem is, I don’t know.

The Math
I don’t know accounting too well, but what I do know really helped me finally figure this out.

In general, Assets equal Liabilities plus Owner’s Equity.

A = L + OE

Whatever you do to the equation, the end result must keep it in balance.

Make a sale: Increase Accounts Receivable (Asset) and increase Revenue (Owners Equity).
Receive a Payment: Decrease Accounts Receivable (Asset) and increase Cash (Asset).

Because PayPal imposes a fee on a transaction, and I never actually see the money before PayPal pulls their share out, the increase in Cash is not as large as the decrease of Account Receivable. In order to keep the equation in balance there must be another adjustment. The PayPal fee is accounted for by increasing Expenses (which falls under Owner’s Equity, sort of, because it acts to decrease Equity).

The Method

I’ll spare you the steps I took to find this out.

When getting ready to download the Transaction History from PayPal, it asks what file type I would like. Because I’ll be importing into QuickBooks, I choose the QuickBooks (.iif) format.

I am then asked the exact name of the accounts I would like my information imported into. They are:

Name of PayPal Account –> PayPal – Business
Name of other Expense Account –> Merchant Account Fees:PayPal Fees
Name of other Income Account –> Accounts Receivable

If you are hoping to modify this method for your own use, allow me to explain what these accounts are.

PayPal Account
This is the account that receives the net income of your transaction. In other words, the total sale amount minus the PayPal fees. In my system, the PayPal – Business account is a “Bank” account set up to reflect the current amount of funds I have available in my PayPal account. This is an account I have created for this purpose. You can create one of your own and name it whatever you would like.

Other Expense Account
This will be the account which records the PayPal transaction fees. If this account only records the PayPal fees you can open it up and get a quick glance of how much you’re losing to PayPal. In my system, this is a Cost of Goods Sold account called PayPal Fess which is a subaccount of Merchange Account Fees. The Merchant Account Fees account is automaticly set up by QuickBooks to record credit card transaction fees. I am treating the PayPal fees much like those credit card transaction fees. Again, because I have created this account, if you would like to create one for your system you can name it whatever you would like.

Other Income Account
This account receives the gross total of your PayPal transaction (before the fees are taken out). In my system they are sent to Accounts Receivable and attributed to a specific customer. This gives the customer a credit which can then be applied to any of their outstanding invoices. For this account I am using the default QuickBooks Accounts Receivable account.

Once the information is imported, I apply the customers’ credits toward their invoices. The invoices are marked as paid and the totals in the various account remain correct.

I hope this helps.

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