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How to Process PayPal Sales in QuickBooks

I hope you don’t mind, but I have what a hope is a quick question. I volunteer at a non-profit horse rescue and sanctuary and help with their books. We receive some of our donations through PayPal and I would like to ask if I’m handling them the best way or if there is a better way to handle them. I go through what seems like a lot of steps.

Our Setup
• We have 2 bank “type” accounts; 1) “Checking – General Funds” and 2) “PayPal”.
• People who provide donations are entered as “Customers”.
• Donations are entered as “Sales Receipts” with the donations assigned to the type of category they are made to, (i.e. General, Hay, Vet, etc.).
• PayPal is entered as a “Vendor”.

PayPal Donations – Steps…
• Make sure the person is entered as a Customer. If not, enter them.
• Create a sales receipt for the “Gross Donation” amount. By default, this gets assigned to the “Undeposited Funds” account.
• Transfer the “Gross Donation” amount from the “Undeposited Funds” account to the “PayPal” account.
• Create a “Bill” from PayPal for the amount of the fee assessed by PayPal for the donation.
• Pay the “Bill” created from the “PayPal” account.
• Transfer the “Net Donation” amount to the “Checking – General Funds” account.

Check or Cash Donations – Steps…
• Make sure the person is entered as a Customer. If not, enter them.
• Create a sales receipt for the “gross amount” donation. By default, this gets assigned to the “Undeposited Funds” account.
• Transfer the “Net Donation” amount from the “Undeposited Funds” account to the “Checking – General Funds” account.

I am not a bookkeeper, am I doing this the best way? Our CPA does not use QuickBooks and just needs us to break out the numbers correctly. I use QuickBooks for my home business and do not have to deal with donations.  Any help or advice you can give would be greatly appreciated.  Thank you so much!

You might also want to look into PayPal add-ons for QuickBooks, but here are some things that will make your existing process simpler:

First, normally you want your sales receipts to deposit to undeposited funds so you can group them together to match the actual deposits in the bank.  But with PayPal, they’re all individual so you might as well have them deposited straight to your PayPal account.  Go to Edit > Preferences > Payments > Company Preferences and uncheck the box next to “Use Undeposited Funds as a default deposit to account”.  This will add a Deposit to box at the bottom left of your sales receipts.

Second, you can add the fees right on the sales receipt.  Create an other charge item called something like “PayPal fees” and map it to your expense account.  When you use it on a sales receipt, enter a negative number for the fee.  This will reduce the deposit to the net amount that’s actually deposited to PayPal.


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This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.

Ruth Perryman - QuickBooks Specialist Written by +Ruth Perryman

Ruth is the an Intuit Premier Reseller that offers great deals on QuickBooks POS and QuickBooks Enterprise. She has provided expert QuickBooks help to thousands of businesses all over the world since 1996.

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2 Responses to How to Process PayPal Sales in QuickBooks

  • Daniel Curry says:

    Ruth’s solution (to include a PayPal fee in the sales receipt) is invalid, because it only credits the donor with the net proceeds, not the full donation amount. (I.e. if a donor donates $10, and paypal takes a $0.35 fee, the donor is credited with a $9.65 donation). At the end of the year, when preparing donor reports (some non-profits like to send donors a summary report for tax reporting purposes), all of those fees add up and the donor doesn’t get to deduct the full amount of their donation.

    • Hi Daniel,

      You should always filter the annual contribution reports to only include only the donations revenue account. For instance, the booked value of donations of property, in-kind donations, services, etc. should not be included on the contributions summary for income tax purposes.

      Here are the IRS instructions for written acknowldgements:

      A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization. An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it is a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing the following information:

      • name of organization
      • amount of cash contribution
      • description (but not the value) of non-cash contribution
      • statement that no goods or services were provided by the organization in return for the contribution, if that was the case
      • description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
      • statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in this publication), if that was the case

      Ruth