What's the best way to handle PayPal?

[Buddha Buck]

On Sat, Dec 3, 2016 at 9:16 AM Dr. David Kirkby (Kirkby Microwave Ltd) <
drkirkby at kirkbymicrowave.co.uk> wrote:

> If I sell something for £100 and someone pays £100 into the bank
> account, then its fairly easy to reconcile that, as one can import the
> bank transactions.
>

As something to consider, while GnuCash does have the ability to import
bank transactions, I, personally, wouldn't do it. The main philosophical
reason is that the bank statement represents the bank's view of what is
going on in the account, which doesn't necessarily match your view.
Transaction dates can be different, errors can crop up, etc. By importing
bank transactions, you are substituting your bank's view for your own.

It also defeats the purpose of reconciliation, which is all about verifying
reality be comparing the story told by your books with the story told by
the bank. If there is an error, the two sets of books won't reconcile, and
you can catch it. However, if you import your bank transactions, you have
based your story on your bank's story, and can no longer count on the
reconciliation process to do anything useful for you.

Also, the bank only tells you half of your story -- it doesn't report the
other side of the transactions. It can tell you that you paid a particular
vendor £100 for something, but it can't tell if that was rent, merchandise,
wages, loan payback, or a mixture of all of those! The bank doesn't know
this, so it can't report it to you.

Others may disagree with this, but it is something to keep in mind.


>
> When PayPal get involved, I'm not sure how to handle this. In the
> simplest possible case
>
> * Balance of PayPal is £0.00
> * Balance of bank is £2000.
> * Someone buys something for £100
> * PayPal take £5 commission
> * £95 is in my PayPal account
> * I transfer the £95 to the company bank account, bringing it up to
> £2000+£95=£2095
>
> I can import the bank transactions, but are unsure how to handle the
> PayPal side of it. Should I set up a separate account for PayPal?
> Should the transaction be split? What the best way to handle this,
> which is least subject to human error.
>

My experience with PayPal is that their reports on the transactions are a
bit of a pain to deal with. I would record the two transactions described
in that simplest possible case this way:

2017-01-01 Sale of gizmo on eBay
  Debit Asset:Bank:PayPal £95
  Debit Expense:Bank Fees:PayPal £5
  Credit Income:Sales:Gizmo £100

2017-01-01 Clear out PayPal account
  Debit Asset:Bank:RBS £95
  Credit Asset:Bank:PayPal £95

Although I'm in the UK, very often I buy items from the USA, and so
> pay USD. PayPal does the conversion from USD to GBP.


> Just to add one more complication, there's a good chance I will want
> to sell more on eBay in USD. I've sold the odd few things there before
> in USD. Despite charging more, some people would rather payin their
> own currency.
>

To further my understanding, your business primarily works in GBP, your
prices are in GBP, and your accounts are in GBP. Your purchased and sales
in the US are done through PayPal, which handles the currency conversion --
when you buy something that costs US$100, PayPal deducts £78 from your
account, and when you sell something to a US customer for $100, PayPal adds
£78 to your account, and you never actually own any USD?

If this is the case, don't worry about currency differences as far as your
books are concerned; PayPal insulates you from all that.