This article covers some examples of transactions that are included in the PayPal Shopify Clearing category, to help you in choosing the appropriate general ledger account and tax rate in your connected accounting ledger.
Overview
A2X for PayPal has been configured in a special way so that data sent to PayPal from Shopify is grouped into its own unique mapping category. This category is called PayPal Shopify Clearing, and the image below can be found on the PayPal Accounts and Taxes page.
A2X has deliberately separated certain categories when transactions are related to Shopify, even if they share the same broader category grouping. This is why you may see two distinct categories in use, as shown in the example below:
Category Name | Sub-Category Name | Explanation | Suggested Mapping |
Payments Received | Express Checkout Payment (CR) | These are non-Shopify payments received within the Express Checkout Payment category of Payments Received. | This may be a revenue account or a non-Shopify ledger clearing account for another shopping channel. |
PayPal Shopify Clearing | Express Checkout Payment (CR) | These are Shopify payments received within the Express Checkout Payment category of Payments Received. | The same (or a contra) PayPal gateway clearing account you have mapped in A2X for Shopify. |
This article is divided into two sections:
For customers using the A2X for Shopify integration.
For customers using a different process for Shopify.
Section 1: Customers using the A2X for Shopify Connection
As you may know, A2X for Shopify requires users to map a general ledger account for all payment gateways. One of these gateways will be the PayPal payment gateway (if in use).
There may be one or more PayPal gateway accounts created in a Shopify payout. The following image provides examples of the types of PayPal gateway accounts that may be created in the Shopify A2X connection.
The purpose of the nominated ledger account in the Shopify setup records the expected deposit made to PayPal from selling and refunding Shopify orders.
Choosing the general ledger account:
If using A2X Auto Setup, A2X will create an account called PayPal Shopify Clearing in the connected ledger. This account type associated with this auto setup account is 'current asset'.
Within your A2X for Shopify account, you can either choose Auto Setup and allow A2X to create this account for you as a default. Or you can select your own account from your connected accounting ledger.
When using A2X for PayPal in conjunction with A2X for Shopify, we recommend that you change this account from the Auto Setup account, to the same account that is mapped in A2X for Shopify for PayPal Gateway transactions.
For reference, you can see in the image above that this account is PPSHOPCL - PayPal Shopify Clearing.
A2X categorizes statement lines in this section that should typically be mapped to the same account as the PayPal gateway clearing account mapped in the Shopify setup.
Desired Outcome
A2X for Shopify will record all expected deposits and refunds to the nominated ledger account in the Shopify home currency.
A2X for PayPal will record all PayPal deposits and refunds to the same (or contra) ledger account in the original currency amounts.
When mapped correctly, the daily postings from the Shopify and PayPal connections should:
Net to zero (if one currency is in use).
Be close to zero (if multiple currencies are in use).
Example: One Currency in Use
The first row is a posting from A2X for Shopify.
The second row is a posting from A2X for PayPal.
Example: Multiple Currencies in Use
Small rounding differences may occur due to spot rates when considering three different currencies (e.g., GBP, USD, AUD).
Every PayPal account contains different transactions, so you may need to make an educated guess initially when mapping PayPal subcategories to the Shopify PayPal gateway clearing ledger account.
For assistance, please contact our Customer Success team.
Section 2 - Customers using another process to capture Shopify transactions
If you do not use A2X for Shopify, you may be using another process to capture Shopify transactions on a daily, or monthly basis.
You may be using another SAAS solution such as a direct Shopify ledger connectivity tool, summarizing Shopify and entering this manually into the ledger, or treating PayPal deposits on a cash basis and recognizing these transactions as revenue when they are deposited to PayPal.
The way you set up the Accounts and Taxes will depend on the process you currently have in place. We recommend you discuss this process with your bookkeeper or accountant.
Reconciling the general ledger account:
If you are using a clearing account to debit Shopify transactions paid by PayPal and credit PayPal deposits from Shopify, the ending balance of this account should be zero.
Choosing the Tax Rate:
The appropriate tax rate depends on whether you account for Shopify transactions on an accrual or cash basis:
Accrual Basis:
If you use a separate process (e.g., A2X for Shopify) to account for daily sales, you could select "No Tax."
Sales tax is already accounted for in the Shopify process.
Cash Basis:
Decide whether to use A2X for PayPal to capture sales tax or another process to recognize the sales tax liability.
We recommend you take advice from your bookkeeper or accountant to ensure Sales Tax is configured correctly.