PayPal processes transactions that represent credits and debits, which increase or decrease the PayPal bank balance.
These transactions are categorized for better organization.
This article focuses on transactions in the Withdrawals and Debits category and provides guidance on selecting the appropriate general ledger account and tax rate in your connected accounting ledger.
What Are Withdrawals and Debits?
A Withdrawal or Debit generally represents a decrease in the PayPal bank account, with funds transferred to an external source.
The most common example is a transfer to a linked bank account.
Other transactions in this category may include payment refunds. Each transaction should be evaluated individually to determine the appropriate ledger code.
Withdrawals can be initiated manually or set up to occur automatically on a recurring schedule, sweeping funds from PayPal to the linked account.
Summarized or Detailed Transactions?
By default, A2X groups the total withdrawals and debits for each 24-hour period. However, you can configure A2X to generate each individual withdrawal to the linked bank account.
When to Use Individual Transactions:
This setting is helpful if you want a 1:1 match in your connected accounting ledger for reconciling bank or credit card transactions. Note that this setting is only beneficial if multiple withdrawals occur within a 24-hour period.
How to Enable Individual Transactions:
Go 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 this setting is enabled, each withdrawal generates a new statement row to be allocated in Accounts and Taxes. Over time, this list may grow significantly, so consider whether summarizing or detailing withdrawals better suits your needs.
Choosing the general ledger account
Your PayPal Withdrawals and Debits 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 Withdrawals and Debits in the connected ledger. This account is categorized as a current asset.
Please note that if you are connected to QBO, you may wish to change this auto-setup account to the actual bank account to which the funds are being transferred. This will make the bank reconciliation process as efficient as possible. If you are a Xero user, it is recommended that you use the A2X auto setup account, or create a clearing account of your choice.
A typical QBO setup of Deposits and Credits is illustrated below:
Reconciling the general ledger account
If a clearing account is used, A2X for PayPal will debit the clearing account for the amount of the withdrawal. The bookkeeper will need to ensure when processing the transaction from the bank account that this transfer is credited to this same clearing account. The two sides (the credit from the transferee account, and the debit from the PayPal statement) will clear to zero. Any transactions that do not clear will need to be investigated and resolved.
The ending balance of this account should be zero, as it is not common to have timing differences between the transfer of funds to the linked bank, from PayPal.
Choosing the Tax Rate
Most of the transactions in this section will be assigned a No Tax rate, as they represent a transfer of funds from one bank account to another.
However, we strongly recommend you consult your accountant or relevant tax authority to confirm whether sales tax applies to transactions in this category.