Need some help with Split Transactions - Bonus answer: how to work with PayPal

[Beth Leonard]

On Sun, Apr 08, 2007 at 05:15:11PM -0700, K-B wrote:
> Here's an example of what I need:
> I sold XXXX item on ebay for $20.00. The person pays me a total of $32.00,
> with the grand total broken down like this:
> 
> Item cost:  20.00
> Shipping cost: 10.00
> Handling Charged: 2.00
> Total: 32.00

Hi,

You've had lots of answers to this question.  Some of them are
even right -- that is, the $32 of the transaction all comes from 
"income" sources.  It goes from several income sources
(sales, shipping income, handling income) to one place, probably
your PayPal account, which should be listed under assets.

It took me a while to figure out how to do this efficiently
for my business, and I'm assuming we aren't the only people
who need to do this so I'm writing up a full summary in case
others reading the archives find it useful.  (Anyone who writes
GnuCash documentation and wants to add an appendix for PayPal,
feel free!)

When you spend the money on shipping expenses, that is a separate
transaction.  I have a small business selling DVDs on-line using
PayPal, and I have recently finished my taxes.  If this is a 
business for you and not just a one-time item sale, you will
need to track "Shipping charged to customers" separately from
"shipping expenses" for US tax purposes.

Likewise, you probably also have some eBay or PayPal fees from
the sale.  You can download your transaction history in QIF format
directly from PayPal, and then import it using "File->Import"

When it asks you to set the default QIF account name, enter
"Paypal account" or similar.  When it asks you to match QIF
accounts with GnuCash accounts, you'll match "Paypal Account"
with "Assets:Current Assets:Paypal Account".    When it asks
to match QIF categories with GnuCash accounts,  match
"Fee" to "Expenses:Paypal fees" and "Shopping Cart Payment
Received" to "Income:Paypal downloaded sales".  That downloaded
sales income account is just a temporary account because paypal's
QIF file doesn't give you the full details of the transaction.
You have to enter those by hand.

PayPal's download (at least for shopping cart items, I can only
assume that eBay sales are very similar) will automatically
create a transaction for you that looks like this:

Expenses:paypal fees		$1.23
Assets:Paypal Account		$30.77
Income:Paypal downloaded sales		$32.00

This reflects that while your customer paid $32, PayPal/EBay
took some, so you actually only got $30.77 in your asset account
and your "fees" expense account was charged $1.23 -- 2.9% plus 30
cents.

You can see the whole transaction by clicking on the "split"
button while viewing your PayPal asset account.

Now what I do is manually fix up the transaction so that the $32
accurately reflects where the money came from.  I'd add the
three lines

Income:Sales - non taxable		$20.00
Income:Sales - shipping			$10.00
Income:Sales - handling			$ 2.00

and delete the line "Income:paypal downloaded sales."  Note
that this temporarily creates an Imbalance account transaction
which also has to be deleted.  I haven't figured out a good way
around that.  When all the bookkeeping is done the downloaded
sales account is completely empty.

Now your whole transaction as viewed from the asset account
looks like this:

Expenses:paypal fees		$1.23
Assets:Paypal Account		$30.77
Income:Sales - non taxable		$20.00
Income:Sales - shipping			$10.00
Income:Sales - handling			$ 2.00

and it will appear that your paypal asset account has increased
by $30.77.  If sales tax applies to your sale and you had PayPal
collect the taxes for you, then it would look like this instead:

Expenses:paypal fees		$1.28
Assets:Paypal Account		$32.54
Income:Sales - taxable			$20.00
Income:Sales - shipping			$10.00
Income:Sales - handling			$ 2.00
Liabilities:Sales tax payable		$ 1.82

(Note: in CA, the 8.25% sales tax applies only to the sale of the item
and the handling, not the shipping charged to you by the shipper.
Other states vary and charge the tax on the S&H as well.  You're
supposed to call this out clearly on your bill to the customer.)

You collect more total money to your bank account, but you also
create a liability that has to be paid later.  State sales tax
is not treated as an "income" by the federal government for income
tax purposes, so it goes straight to your liability account and
gets paid out of your bank account monthly or yearly as the case
may be.

When you actually ship the item and pay FedEx, you'll create
a transaction
Expenses:shipping expenses $10.00
Assets:Bank Account			$10.00

Now at the end of the tax period it will be easy to total
how much you collected in shipping income from sales, and how much
you spent in actual shipping fees.

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Hope this helps,
--Beth 
Beth Leonard
http://www.LeonardFamilyVideos.com