PayPal processes transactions that represent credits and debits, which increase or decrease the PayPal bank balance. These transactions are categorized by PayPal for better organization.
This article will provide examples of transactions included in the Deposits and Credits category and guide you in selecting the appropriate general ledger account and tax rate in your connected accounting ledger.
What Are Deposits and Credits?
A Deposit or Credit generally refers to an increase in the PayPal bank account, often originating from an external source. Common sources of funding for a PayPal account include:
Transfers from a linked bank account
Transfers from a credit card
You may also encounter other transactions in this category, such as payment refunds, debit card transactions, or cashback bonuses. Each of these requires careful consideration of its individual circumstances when assigning a ledger code.
Occasionally, if the PayPal balance falls below zero, PayPal will automatically transfer funds from your linked account to cover the deficit.
Summary or Detailed transaction details?
By default, A2X records the total deposits and credits for each 24-hour period. However, there is an option to generate each deposit from a linked bank account or credit card as an individual transaction. This setting is useful if you want a 1:1 match in your connected accounting ledger for reconciling bank or credit card transactions.
How to Enable Individual Transactions:
Navigate to Settings in the menu bar.
Select Statements, Accounts, and Taxes.
Change the radio button to "Individual Transactions."
You will see a warning modal indicating that this change will apply prospectively. To apply the change to previous statements, you must refresh them.
Important Considerations:
When enabled, each individual deposit generates a new statement row to be allocated in Accounts and Taxes. Over time, this list may grow very large, so evaluate whether generating deposits individually or in summary better suits your needs.
Choosing the general ledger account
If you're using A2X Auto Setup, A2X will create an account called PayPal Deposits and Credits in the connected ledger. The default account type for this is 'current asset.'
For QuickBooks Online (QBO) Users:
You may want to change the auto-setup account to the actual bank or credit card account where the funds are transferred from.
This adjustment will streamline the bank reconciliation process.
For Xero Users:
It is recommended to use the A2X auto-setup account or create a clearing account of your choice.
Reconciling the general ledger account
If a clearing account is used, A2X for PayPal will credit the clearing account with the transfer amount. The bookkeeper must ensure that the corresponding transaction from the linked credit card or bank account debits the same clearing account.
The two sides (the debit from the transferee account and the credit from the PayPal statement) should clear to zero. Any discrepancies will need to be investigated and resolved.
Ending Balance:
The ending balance of this account should typically be zero, as timing differences between transfers are uncommon.
Choosing the Tax Rate
Most transactions in this category will be assigned a No Tax rate because they represent transfers of funds between accounts.
We strongly recommend you consult your accountant or relevant tax authority to confirm whether sales tax applies to transactions in this category.