how to deal with paypal fees

Geert Janssens janssens-geert at telenet.be
Sat Oct 31 04:17:01 EDT 2009


On Saturday 31 October 2009, Pablo Francesca wrote:
> Basically, you're just gonna have to eat the loss on this one.  In the
> future, you'll need factor in paypal costs into your prices. 13 dollars
> seems like way too much. I pay 3 percent for my transactions.
>
Ok, this compensates for the loss in real world. But I think the original 
poster's actual question is: how do I book this in GnuCash using the business 
accounting features ?

This question remains, irregardless of how you calculate your original invoice 
amount.

> Its not different than many other merchant processing fees. The only
> exception is that with paypal they are taking their cut beforehand, as
> opposed to at the end of the month.

Indeed, and let's translate this into GnuCash use:
Let's start with the number given:
You create an invoice for your customer, worth $250.
When the invoice gets posted, this is added to some income account. This is 
correct, because this is what you are charging your customer for the work you 
did.

At some point, the customer pays you via Paypal. Because of the Paypal fee, 
you only see $237 appear. But this is actually the endresult of two 
transactions thrown together:
1. Your customer pays you $250
2. Paypal charges you $13

Ideally, you could book the second part directly to an expense account, but 
you can't. There's a couple of ways to deal with this. In my mind the easiest 
would be this:
When you get your payment, use "Pay Invoice" to book two payments:
1. One payment to your checking account for the net amount you received: $237
2. One "payment" for the paypal charges. Make this payment to a new liability 
account you create specifically for the purpose. Call it "Paypal reserved 
income" or whatever suits you.
3. Then to balance, it depends a bit on whether or not you receive a bill from 
paypal at some point in the future for this charge.
3a. Assume you do get a Paypal bill at the end of the month:
Simply book this bill as you would normally. But this time, you can pay the 
bill from the liability account in the previous step and your books are 
balanced.
3b. If you don't receive Paypal bills (which would be a bit strange), you can 
balance your books by manually creating a transaction between your Paypal 
Expenses account and the Paypal liability account to balance.

As said before, variations are possible.

I hope this explanation helps.

Regards,

Geert

> You will need to plan ahead on this,
> or take the hit in your profits.
>
> --- On Fri, 10/30/09, Josh Trutwin <josh at trutwins.homeip.net> wrote:
>
> From: Josh Trutwin <josh at trutwins.homeip.net>
> Subject: how to deal with paypal fees
> To: "gnucash-user at gnucash.org" <gnucash-user at gnucash.org>
> Date: Friday, October 30, 2009, 8:16 PM
>
> I'm not an expert at book-keeping so curious how others deal with
> this.
>
> I invoiced someone for $250 of work - they decided to paid me via
> Paypal which took out there $13.00 or something so the money I
> transferred from Paypal to my checking account was less than my
> invoice amount. 
>
> I'm not sure how best to deal with this - just mark the invoice paid
> even though the deposit amount doesn't equal the amount in Accounts
> Receivable - or add a "Paypal Fees" account and deduct that somehow?
>
> Thanks for any pointers.
>
> Josh
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