PayPal processes transactions that represent credits and debits, which increase or decrease the PayPal bank balance. These transactions are categorized for easier organization.
This article focuses on transactions within the Releases, Withheld, Reserve Release, and Reserve Withheld categories and assist you in choosing the appropriate general ledger account and tax rate in your connected accounting ledger.
Understanding Withheld and Released Transactions
PayPal may hold payments for various reasons related to account activity. Examples include:
The PayPal account is new or has been inactive.
Multiple customers have reported issues or requested refunds.
You are selling high-risk items.
In such cases, PayPal may withhold certain amounts and release them after a set period.
Transactions labeled Hold or Release represent timing issues and should be reconciled within a balance sheet clearing account.
Release transactions generally increase the PayPal bank account.
Withheld transactions generally decrease the PayPal bank account.
Amounts withheld but not yet released should be recorded as a balance sheet asset to ensure revenue is recognized in the correct period.
See the below example of a PayPal customer with ending withheld balances by different currencies:
Why Separate Reserve Accounts by Currency?
A2X organizes these transactions by currency, allowing you to create separate reserve accounts for each currency. This simplifies month-end reconciliation by enabling you to compare balances from the PayPal statement (by currency) to those on your balance sheet.
Important Note:
Ensure that the correct Withheld Beginning Balances are captured on the balance sheet as of the day before A2X starts posting PayPal statements to your connected ledger.
Incorrect opening balances will prevent reconciliation of the closing balance.
Choosing the general ledger account
Your Withheld and Released Transactions 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.
If using A2X Auto Setup, A2X will create an account called PayPal Withheld and Releases in the connected ledger. The account type associated with this auto-setup account is 'current asset'.
It is recommended that you map all transactions that flow through these four categories to a Balance Sheet account or accounts. We recommend that you set up a Reserve by Fx Currency.
Reconciling the general ledger account
The ending balance for each of these Reserve Accounts Fx should match the Withheld Ending balance column in the PayPal statement.
Choosing the Tax Rate
These transactions represent timing issues only. Therefore, in most cases, a 'No Tax' code should be chosen for all transactions in these categories.
However, we strongly recommend you consult your accountant or relevant tax authority to confirm whether sales tax applies to transactions in this category.