With Paypal, Square and Intuit Payment Network being popular options for receiving payments it’s helpful to know how to record those fees in Quickbooks (or other accounting software) while also assuring our client and customer balances are properly reflected.

The way described below is much faster and efficient than recording a journal entry.

The video below gives you the visual on two different ways you can handle the bookkeeping for these Paypal and Merchant Services fees using both invoices and sales receipts in Quickbooks.

Example One works with both sales receipts and invoices. It also works with both Undeposited Funds and for those of you who have your deposits go directly into your bank account within Quickbooks.

For this example you will need to do the following:

  1. Create the Expense Account for Paypal/Merchant Service Fee on the Chart of Accounts
  2. Create an Item for the fee on your “Item List” and assign that Item to the expense account you have (or just created in Step One)
  3. When entering the invoice or sales receipt for the client you will use the created Item and then you will enter the amount withheld by Paypal or your credit card processing company as a negative
  4. Double check that the net amount showing on the invoice or sales receipt matches the amount received from the merchant
Example Two only works if you use Undeposited Funds in Quickbooks
For this example you will not use the item as described in Example One.
  1. Create your invoice for the full amount
  2. Receive payment for the invoice in the full amount
  3. Go to Undeposited Funds to make the deposit
  4. At the deposit screen manually add in the Paypal fee as a negative amount to the expense account in your Chart of Accounts
  5. Double check that the net amount on your deposit screen matches the amount received from Paypal
Isn’t this process so much easier?
If you have any questions or need additional clarification let me know in the comments below or send me a tweet @mmangen
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