PayPal processes transactions as credits and debits that increase or decrease PayPal's bank balance. PayPal arranges these transactions in categories.

This article covers some examples of transactions that are included in the Payments Sent category, to assist you in choosing the appropriate general ledger account and tax rate in your connected accounting ledger.

Payments Sent transactions represent debits from your PayPal balance, typically payments to suppliers. Examples include Express Checkout, Mobile, Subscriptions, or Website payments.

By default, these transactions are grouped daily by currency. You can change this setting to display individual transactions by supplier under Settings > Statement, Accounts and Taxes.

This setting can be toggled between all payments grouped, and payments broken out by individual suppliers, by navigating to Settings | Statement, Accounts and Taxes.

You have the choice of using Auto Setup where A2X will create the default account for you. Or you can select your own account from your connected accounting ledger.

If using the A2X Auto Setup, A2X will create an account called PayPal Payments Sent in the connected ledger. This will be a 'current asset' account.
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The general ledger account you select is a customer-specific decision tailored to match your accounting workflow. If you're unsure, we recommend speaking to an accounting expert.

You may be using an accrual accounts payable functionality within your ledger, where you create and pay a bill.

Or you may be using a cash-based system, where the expense is recognized when the transaction is posted from the bank statement. Here are some recommended configurations for each process:

Recommended process for accrual/accounts payable ledger workflow:

1. Set Up a Balance Sheet Account

The A2X recommended approach is to set up a balance sheet account and post all transactions relating to Payments Sent to this account.

If you use the Auto Setup feature, A2X will create a balance sheet account called 'a2xppps - PayPal Payments Sent'. All transactions that are allocated to the Payments Sent category of PayPal will be posted here.

If you're using your own account, ensure this account is configured to pay bills (e.g., in Xero, enable the "Enable payments to this account" option during setup).

2. Reconcile Transactions

The next step would be to work through each of the transactions in the account and use this account to "pay" the bill.

The following is an example of the PayPal Payments Sent account after the PayPal statements are synced for the date period.

The user will then retrieve each applicable bill, and "pay" that bill using the PayPal Payments Sent account as shown below:
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The amount will then be cleared from the PayPal Payments Sent account as shown below:

Recommended process for cash setup:

If you do not use accounts payable or bills within your ledger, it will be necessary to clear out this balance sheet account to the appropriate expense and sales tax code.

This can be done in different ways depending on your preferred workflow. One option is to raise a journal on a monthly basis as follows:

1. Creating a monthly journal entry to clear out the balance sheet account

The main goal of using the Payments Sent clearing account, is to ensure it resets to zero at the end of each period, by using a customized workflow set by your business.

If you use a Clearing account for Payments Sent, each transaction will need to be reviewed and reallocated to pay a bill, or coded to the expense account.

The ending balance of this clearing account should be zero as at each month-end.
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If you use a clearing account, it is recommended to use a 'No Tax code'. If you map the Payments Sent to an expense account, you will need to determine if sales tax is applicable and choose the appropriate tax rate for your circumstances.
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Please note we'd recommend you check with your accountant or relevant tax authority to determine if sales tax is relevant to this transaction category.