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 focuses on transactions in the Payments Received category and provides guidance on selecting the appropriate general ledger account and tax rate in your connected accounting ledger
What Are Payments Received?
A Payment Received transaction typically represents an increase to the PayPal bank account, originating from a checkout on a shopping channel. These transactions are most commonly classified as Express Checkout Payment.
Important Note:
Receipts from Shopify are not included in this category. Instead, Shopify transactions are categorized under the PayPal Shopify Clearing category.
Other transactions in the Payments Received category may include:
Mobile Payments
Payment Bill User Payments
Each of these transactions should be evaluated individually to determine the correct ledger code.
Choosing the general ledger account
Your PayPal Payment Received will need to be mapped to a GL account. You can either:
Use A2X's Auto Setup and allow A2X to create this account, or
Choose your own account from your connected accounting ledger.
When using A2X Auto Setup, A2X creates an account called PayPal Payments Received in the connected ledger. This account is set up as a current asset.
Before choosing the general ledger account, consider whether there is another bookkeeping process in place to capture the revenue from PayPal. You may have a current process in place or a connection established between these Shopping Channels and your accounting ledger and the connected solution may debit expected PayPal receipts to a clearing account. If this is the case you will need to choose the same Clearing account in this category to balance the Clearing account back to zero.
It is recommended that you map all Payments Received to a Clearing Account - during your month-end reconciliation, you can review what transactions have been recorded to this account and then reallocate to the appropriate revenue account (with the correct tax code) during month end.
Reconciling the general ledger account
If you use a Clearing account for Payments received, each transaction will need to be reviewed and reallocated to revenue where appropriate.
The ending balance of this account should be zero as at each month end.
Choosing the Tax Rate
If you use a clearing account, in most cases it is recommended to use a 'No Tax' code. If you map the Payments Received to a revenue account, you will need to determine if sales tax is applicable and choose the appropriate tax rate for your circumstances.
However, we strongly recommend you consult your accountant or relevant tax authority to confirm whether sales tax applies to transactions in this category.