WSW - Reconciling PayPal Best Practices Podcast
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[00:00:00] [00:00:30]
[00:00:38] Introduction and Casual Conversation
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[00:00:38] Dan DeLong: Welcome again to another Workshop Wednesday brought to you by schoolbookkeeping. com where it's just casual conversations for just serious, serious workflows
[00:00:48] Both: and
[00:00:49] Dan DeLong: appreciate you joining us here today. And as you may, may or may not notice, um, Rachel's background is a little different.
So we're, uh, [00:01:00] Life goes on whether you have a workshop scan Planned or not. So I appreciate reach Rachel joining us from from father's house today. Is that that we're right?
[00:01:14] Rachel Dauchy: Yeah, thank goodness for my for my laptop and actually thank goodness. He had his Wi Fi password ready to go
[00:01:22] Dan DeLong: That's right so not a Not, not too, not too many, um, security measures for his, [00:01:30] for his, just leave his Wi Fi password just laying around for you to stumble upon.
[00:01:35] Rachel Dauchy: Oh, it's on a piece of paper.
[00:01:38] Dan DeLong: That's right. He's not, uh, he's not practicing PCI compliance.
[00:01:44] Challenges of Reconciling PayPal
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[00:01:44] Dan DeLong: We appreciate you joining us because if you didn't join, I would have nothing to talk about today, uh, because we're going to talk about what you do, uh, to reconcile PayPal,
[00:01:56] Rachel Dauchy: reconcile PayPal, Dan, come on.
[00:01:59] Dan DeLong: Well, [00:02:00] I have, I have my own methods,
[00:02:02] Rachel Dauchy: but
[00:02:02] Dan DeLong: I was, I was curious about what What, what Rachel does today, uh, when, when it comes to best practices for, for PayPal, because PayPal is one of those things, aspects of a, of a business, and we talked about it last week of, of why PayPal and Venmo and those types of, um, accounts are, increasingly challenging.
So if you just want to kind of recap, um, the, [00:02:30] the, the overall challenge with PayPal and, and why you get so excited when you, you hear that word when it comes to your clients.
[00:02:39] Rachel Dauchy: Well, the reason that I'm excited about PayPal and Venmo and all those things is because it's really complex and I love doing the really complex reconciliation because it's fun.
[00:02:52] Importance of Accepting Multiple Payment Methods
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[00:02:52] Rachel Dauchy: But from a business owner's perspective, they should want to use PayPal and Venmo. And well, I mean, [00:03:00] if they're an e commerce business or selling stuff or like we discussed last week, um, gosh, even the service space business, you know, I'm doing some home renovations in both my house and my dad's house. And, um, The guy accepts PayPal.
I sent me a PayPal link. So really even a service based business, they really want to, we don't live in the world, the kind of world anymore when, um, sorry, I got to turn off my notifications, but, um, again, um, we, we, you, we don't live in that kind of [00:03:30] world where, you know, just somebody only will take a check.
You know what I mean? Or, um, you know, a lot of, even if they're a little more old timey business, like they may take a bank transfer or a wire. But, you know, those days of businesses really only taking cash or check, um, they're really limiting themselves. So there's all kinds of different ways to get paid.
And so I usually encourage all my clients to, um, accept anything you can get that money. We'll take care of [00:04:00] it on the backend. We'll do the accounting and bookkeeping, but they really want to create an account in PayPal and Stripe and Square, whatever will help them get that money.
[00:04:10] Dan DeLong: Yeah. And, um, Yeah. And that's, and that, and you bring up a good point because it's, it's, it's super convenient.
Um, and you don't want to be an obstacle to accepting. a form of a payment method that somebody is willing to give you, right? Right.
[00:04:29] Rachel Dauchy: And how [00:04:30] many times have you, um,
[00:04:31] Dan DeLong: do you take PayPal? Do you take fill in the blank?
[00:04:35] Rachel Dauchy: Yes.
[00:04:37] Dan DeLong: You
[00:04:37] Rachel Dauchy: want to be able to say I take all the things instead of telling your customer, especially if You know, you need to accept multiple thousands of dollars.
You don't want to say, well, I don't take that. Um, because you're frustrating them and you could potentially alienate them and they may, might not be a repeat customer. And they might also tell other people, um, they're a pain to deal with or your, your business is a pain to deal with. [00:05:00] So, um, you want to be able to accept all those payments.
[00:05:04] Dan DeLong: Um, I used to watch this show called the profit. Um, it was the, uh, I can't, it's the, it's the CEO of, uh, camping world. I can't remember his name now, but he would go around to different businesses and kind of look at. You know, what their business practices were. And I remember, uh, one, one episode where he was talking, um, it was, uh, it was, uh, uh, it was a barbecue [00:05:30] place somewhere where barbecue is, is, is relevant and they only took cash and like they were turning away business.
Because they did not accept credit cards. And, you know, he had a really nice example of, you know, and, and their, their reasoning was, well, the fees, right. You know, it's their bottom line, uh, because of the fees and he, and he, he explained it to him. It's like, look [00:06:00] how much business you're losing accepting credit cards.
And how much is that in comparison to the 2, 3%, or whatever it is for, for the credit card charges? Um, You know, in, in relationship to that, I mean, you would grow X amount.
[00:06:18] Rachel Dauchy: Yeah. Which is essentially even a deductible expense anyway. So, yeah, it's just a cost of doing business. The math doesn't add up.
[00:06:27] Dan DeLong: Yes. Um, so, you know, [00:06:30] PayPal is one of those things where it, it, it could allow a business to accept more, or, you know, have that customer as, as in terms of.
And a and a, an a nuisance. A nuisance of , of not being able to accept the, accept the payment that the customer is willing to to use. Um, I also see the flip side of that, where people are annoyed if PayPal is the only payment option, as well. So you want to have a [00:07:00] multitude of ways to. Um, but when, when it comes down to you, you mentioned it, it's a puzzle and it's, it's difficult.
And we talked a little bit last week about why it's so, it's so difficult is because it's not just one thing. It's, it's not just you're taking money. You, you mentioned, you know, somebody could send an invoice through PayPal. Somebody could pay for goods and services with PayPal. So that's all just kind of funneling into this [00:07:30] one.
[00:07:31] Classifying PayPal in QuickBooks
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[00:07:31] Dan DeLong: And I guess, um, would you, would you call it a bank account? Would you call it a credit card account? Would you call it an escrow account? What would you classify PayPal, the PayPal balance as being?
[00:07:44] Rachel Dauchy: We definitely at net deposited, we consider it a bank account, um, an asset on the balance sheet. We reconcile it like a bank account.
Um, and when we're creating the account and, um, I can get to this, well, I'm sure we'll get to this a little bit later, but when we're actually, Um linking PayPal [00:08:00] We create we that the actual account that we're creating in qbo is a bank account
[00:08:07] Dan DeLong: Okay Susan agrees.
[00:08:09] Rachel Dauchy: Yep. Susan agrees.
[00:08:12] Dan DeLong: And if Susan agrees, uh, ACC5, I think that's probably a typo.
Yeah.
[00:08:21] Rachel Dauchy: I mean, and you have to think about it too in, in QBO, your, your deposit to like when you want to select what you're depositing to, it will only work if it's [00:08:30] set up as a bank account. So, um, yeah. I don't think you tell me you're the expert. If I set it up as other current asset, can I deposit to it or does it have to be a bank account?
[00:08:40] Dan DeLong: You can deposit to it, but you can't connect it. Right. So, um, the two types of, of accounts in QBO that, that can accept, you know, that you can connect a bank feed to is a bank account where it's listed as a bank account or a credit card account.
[00:08:57] Both: Um, other types
[00:08:58] Dan DeLong: of like notes [00:09:00] payable or lines of credit or those types of things that you would set up as other current assets or liabilities.
They don't connect. And then there's typically a, an error message that happens when you try to import transactions to those types of accounts. So you do have to kind of set it up as a, as one of those two. Um, and this is kind of odd in the, in, in, in terms of, you know, What kind of account you are setting it up as, [00:09:30] because if they primarily use it for expenses, um, you know, then maybe you want to see it more on a, on a credit card side of side of things.
But, you know, in the grand scheme of things, just like a, just like any other bank account where you have a debit card, that's money coming out and deposits where it's money coming in, it makes, it makes the most sense that it's actually a, a bank account.
[00:09:54] Rachel Dauchy: Yeah. And I, I like, like the way that you're describing that is very QBO.
Like we say money out, money [00:10:00] in, and, and when I'm helping and training and dealing with business owners, I, I like to use that. Those are very simple terms. Um, they're not necessarily accounting terms, money in, money out, but it's software term. And I like that. And so, um, I actually probably wouldn't ever set it up as a credit card account, but, um, just because of the nature of the money movement.
Um, for me, it's, Simpler to think of it as a just a simple checking account and we can get into that a little bit more but um, but yeah, like [00:10:30] you were saying I um it you can Um use and when I say you I mean business owners can use paypal to buy things but um when you know, we're talking about using paypal as a means of collecting money from your customer, like we were just kind of saying when in an intro when we first came in.
Um, at Net Deposited, we usually have very high volume clients. And so for that [00:11:00] reason, I like to even keep it simpler and And we usually discourage business owners from buying stuff with their PayPal account. So we don't have a lot of money in and money out. Um, we usually are dealing with money in, but, um, but I do want to touch upon when we are dealing with money in and money out and we can get to that when you're ready to talk about that.
[00:11:24] Dan DeLong: Well, let's just dive right in.
[00:11:25] Best Practices for Managing PayPal Balances
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[00:11:25] Dan DeLong: But I think one of the other things that I think we want to, um, [00:11:30] caution people about the, um, You know, connecting PayPal as, as a bank account is this whole idea of, of transfer and, um, the, when you have your bank account connected to, or your PayPal account as a funding account coming from your bank account, then you're going to, you're going to see it for both ends.
You're going to see the transaction leaving the bank account and going to PayPal. [00:12:00] To fund the PayPal balance, so to speak, in order to pay for those expenses and that gets Entirely challenging when it comes to categorizing both of those things, because a transfer, um, when, when both sides of the account are connected, you see this with, you know, transferring from savings to checking,
[00:12:24] Both: um,
[00:12:25] Dan DeLong: who does it first, right?
You know, like which account you actually [00:12:30] reconcile it first or, or, or. acknowledge the bank feed transaction. And if that comes in as a, as a deposit, as opposed to a transfer between two financial accounts, um, then you see a negative deposit on the PayPal side of things, or you see this, uh, positive expense, uh, just to, it depends on which one shows up first and the bank sees nothing about the actual.
Transaction itself. It just says, well, I [00:13:00] just sent money to pay pal.
[00:13:01] Rachel Dauchy: Yeah. So, uh, so, so what you're, what you're explaining is like pretty much the most, um, confusing part about it all. And so, so I just kind of want to back up really quick. And I, and I just want to say, remember a few episodes ago when we were talking about, um, the, uh, into it live bookkeeping.
Well, one of my employees, Alyssa, she works for into it, live being in our meeting this morning. We were talking about the fact that [00:13:30] we're, this is what we're talking about today. And she said, wow. Okay. The one thing that you have to talk about the one thing everybody asks into it, live bookkeeping.
regarding PayPal is what the heck do I do with this money movement when it's pulling, you know, because like you just said, you're seeing situations in which it's pulling from another account, but it's not always going to do that. So I want you guys to think about it this way. Okay. [00:14:00] PayPal is essentially going to do One of two things.
Okay. So we're going to think about it very, very simply situation. One is this. I have PayPal connected to my checking account because, um, and let's, let's for this situation, let's say it's very, very, very low volume because we want to get very, very simple. So, um, I would like, I'm a business owner, and I would like to be able to accept payments through PayPal.
And occasionally I'm going to buy something with PayPal. Not [00:14:30] very often, but every once in a while. Um, or I mean once a month I may have a recurring transaction connected to my PayPal. Like, um, my Pandora account or something like that. Connected to pay with my PayPal. Um, okay, so. Let's say I have collected some money from a customer and it goes into my PayPal, and in my PayPal setting, I have opted not to sweep it over to my checking account.
I want to keep a balance in my [00:15:00] PayPal. That means when I log into PayPal and I look at my balance, I can see, oh, they'll say I had a, a, a customer pay an invoice of mine for 5, 000 and they paid with PayPal. Well, it's just going to sit in my PayPal balance, unless I turn on my. setting to sweep it over to my checking account.
And in that situation, you will see in money banks and cards and the settings in PayPal, um, when you look at your checking account, you can say, you know what? I want to automatically transfer [00:15:30] my PayPal balance. every single day. That means in the at every night, if you have a balance in your PayPal account, it'll automatically sweep it to your checking account.
We have a lot of clients that like to do that because they don't want to leave a lot of money sitting in their PayPal account, because guess why? If it comes over to their, you know, savings account or checking account. Maybe it's an interest sparing account and then they sweep it over. Then, you know, they can receive that interest.
And so, um, or you can turn it on, maybe transfer it every two weeks. You can turn it [00:16:00] on, transfer it every four weeks. Um, now in that situation,
[00:16:04] Dan DeLong: do you feel that that's the best practice is to do the auto sweep?
[00:16:08] Rachel Dauchy: The best practice is to sweep it daily because guess what? Then you're essentially treating PayPal as a pass through account.
It makes it a lot easier to reconcile because think about it this way. Your PayPal account is always. going to have a zero balance because everything is just sort of passing through it, right? So when at the end [00:16:30] of the month, when you go to reconcile your PayPal balance, which we'll talk about in a bit, you're reconciling to zero.
Otherwise, you're going to have to go into your PayPal account, look at your PayPal statement, and at the end of the month, you're going to have an amount that you have to reconcile to. So, um, so we want to think about our PayPal as more of a pass through. That's the end. That's the best practice. That's the easier way to do it.
Um, I'm not even going to get into foreign currency. This is, this is not to talk about that right now. Um, Jamie is probably [00:17:00] laughing over there because she's, she's in foreign currency. Um, he, you know what right now? So we'll, we'll not, we'll not go into that. But anyway, um, so, so best practice is to make sure that you, you tell your client, you know what you want to advise them speaking about advisory.
Turn it on every single day, um, to have it sweep every day. Okay. So now we are not holding a balance in our PayPal account. And now guess what we're going to start seeing.
[00:17:26] Handling Transfers and Expenses in PayPal
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[00:17:26] Rachel Dauchy: We're going to start seeing transfers. We're going to [00:17:30] see from now in your, in your QBO screen, in your bank screen, you've got accounts, right?
And, and on your banking feeds, you've got checking account, checking account, checking account, credit card account, budgeted, uh, and then the presumably of your PayPal account. So let's say you go to, um, let's, and this is like, I, we, uh, we had a client that would always buy stuff with PayPal. Let's say they went to Napa Auto Parts, right?
And, um, and they had, they have an option [00:18:00] to purchase with PayPal. So, so, So they, so they do. They go and they buy some auto parts at Napa Auto Parts and the, the, um, the charge comes through their PayPal. But guess what else they're seeing? That in Money, Banks, and Cards, that PayPal account is attached to, let's say, Chase checking account 1234.
Okay, so in the Chase bank feed, they're seeing a transfer. Why, [00:18:30] Dan? You tell me why they're seeing a transfer
[00:18:32] Dan DeLong: because it's pulling from there to
[00:18:36] Rachel Dauchy: exactly the PayPal balance. So is the expense hitting in the chase account?
[00:18:43] Dan DeLong: No,
[00:18:44] Rachel Dauchy: no, no. So what it's doing in the background is PayPal is saying, Hey, chase account, give me the money for this transcription.
Transcribed shove it into my PayPal account so I can go ahead and pay for it with PayPal, right? That's, that's the technical term, just [00:19:00] shove it in there.
[00:19:02] Both: Just cram it in there.
[00:19:03] Rachel Dauchy: Yeah. So, so you are going to see a transfer, just a money movement from Chase to PayPal, then PayPal to the expense. So that's the accounting that you need to think about right now.
What Alyssa was saying to me earlier is that a lot of, um, bookkeepers and business owners are people that are seeking out help from Intuit Live Bookkeeping. And remember, like we said, Intuit Live [00:19:30] Bookkeeping does not go into their QuickBooks. All they do is just look at the screen and they advise them.
And so she said that's the number one thing that everybody gets wrong, is they see that money movement in Chase and they go, Oh, it's an expense coming out of Chase. No, it's not. And so then you're risking duplicating your expenses. And is that a bad thing to do?
[00:19:51] Dan DeLong: Oh, yes, that is a bad
[00:19:53] Both: thing.
[00:19:54] Dan DeLong: Yeah,
[00:19:54] Rachel Dauchy: it's really bad.
[00:19:55] Dan DeLong: Um, but that, I think part of the, the, the challenge of all this [00:20:00] is that there is some information on that bank feed from the bank's perspective that gives some indication that Oh, this was for blah, blah, blah, blah, blah. For who there's some kind of payee notification in the bank details. And that's where people get in trouble.
They get
[00:20:21] Rachel Dauchy: a little muddled. And so, and so it'll usually say. Um, to PayPal, but they don't quite understand that. And [00:20:30] so they'll, they'll go, Oh, this is that charge for Napa auto parts. So we'll see them code that as an expense in that chase account. Well, that's immediately where they go wrong. So what, so the indicator is usually is you want to look at when you're, when you're doing your bank feeds, you're looking at these, I can see this 7599 right here in PayPal, and I'm seeing the 79, 5 99.
Here in chase. So really, what we want to do is we want to do a transfer. from Chase to [00:21:00] PayPal, because that's all it's doing is just going from here to there. And then on the PayPal side, it'll usually then match that transfer. Great. That transfer is there on both sides. Then you'll see a second money out transaction because the transfer was money in, right?
On the PayPal side, the transfer on the Chase side is money out. So it's money out from Chase to PayPal, money in from PayPal. When you're looking from PayPal to [00:21:30] Chase, it's money in. Then there's a secondary transaction that's the actual expense. And that's the expense that gets recorded on the PayPal side.
So that's when people are. making purchases in PayPal. It's you and it's not holding a balance in PayPal. It's got a pull from a source. Now, if there is a balance in PayPal, if you're opting to not sweep that money every single night and you are collecting money from your customers and [00:22:00] it's just sitting in your PayPal.
So let's say you've got a balance of 250 in your PayPal account, and then you go to Napa Auto Parts and you buy a hundred bucks worth of stuff. It's just going to pull it from the balance in PayPal and you will not have a transfer. You will just see an expense. So in my opinion, that's what confuses a lot of people because sometimes there's transfers And sometimes there's not.
And maybe in the middle of the day, there is a PayPal balance [00:22:30] sitting there. And so you're just going to see an expense. And then maybe at the end of the night, it'll sweep it over. And then the next day it's got to cause a pull. So it can get really, really challenging. Am I cutting out?
[00:22:44] Dan DeLong: Nope. No, you're, you're, you sound great to me.
[00:22:47] Complexities of Multiple Bank Connections
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[00:22:47] Dan DeLong: Um, but these, uh, I was, I was curious about, um, cause I don't deal a lot with a lot of high volume in, in PayPal in, in your experiences, have you [00:23:00] seen a situation where they do have the daily sweep, right? Uh, money of money coming in, but they do some expenditures throughout the day. This, and there's, there's maybe not enough in the, Money coming in to cover the expense to do
[00:23:19] Both: right.
[00:23:20] Dan DeLong: Does the expense all seem dollar amount of the pool from the bank account or or is it?
[00:23:28] Both: Potentially where you have
[00:23:29] Dan DeLong: where you [00:23:30] have some from the balance and some from some
[00:23:36] Rachel Dauchy: Yeah, I, I totally get what you're saying. I actually, I would like Jamie to chime in and maybe make a comment because she's the one that sees it constantly. I don't think so. I don't think it's gonna partially grab a balance, um, some from the balance and some from the bank. I don't know. Um, that is a really, really good question.
Um, I, I'm a little more removed from it now and think about it more conceptually, but, um, she would know. [00:24:00] So if she, maybe she can check or maybe she was just knows off the top of her head, but, um, yeah, I has, has pointed out
[00:24:06] Dan DeLong: that, uh, transfers are always the problem, QuickBooks, that
[00:24:10] Rachel Dauchy: is
[00:24:11] Dan DeLong: his, uh,
[00:24:12] Rachel Dauchy: his,
[00:24:12] Dan DeLong: uh, Achilles heel, uh, with, with regards to pay
[00:24:17] Rachel Dauchy: and Matt, I totally agree.
And that's why, like. Obviously, you know, anybody who's watching this me think, what in the world is she talking about with this pulling from here and pulling from there? Oh, and that's [00:24:30] just if it's connected to one checking account. Sometimes these business owners have PayPal connected to 3, checking accounts.
And boy, did I learn the hard way. charge more for that complexity. Because if some, if you ask a potential client, if you're an accountant or a bookkeeper and you ask a potential client, Jeff, PayPal, and they go, yeah, is that enough price?
[00:24:55] Complexity of Managing Multiple PayPal Accounts
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[00:24:55] Rachel Dauchy: No. Because what if they've got, um, payouts coming in from [00:25:00] PayPal and those are sweeping to one checking account and then they're making purchases and it's pulling from three, four, five checking accounts.
That complexity, it requires. A lot of money to, for you to, to earn, to deal with that. You know what? It's so time consuming. And
[00:25:14] Dan DeLong: there better not be a credit card tied to that funding source for.
[00:25:19] Rachel Dauchy: Yeah, yeah, for sure. Oh, and there always is. There always is. So now I go through that with a fine tooth comb. Uh, when I'm pricing, I look in their PayPal settings.
I look to see what that's connected [00:25:30] to. Sometimes they say, Oh, I only have one PayPal. Jamie, what do we know about that? Nope. We see, um, transfers to a mystery PayPal, and then we discover, nope, they've got maybe two, three, four PayPals. So it can get really complex, but again, we're going to go back to our situation.
Oh, Matt, of course, there's
[00:25:52] Both: loans.
[00:25:53] Rachel Dauchy: Yeah. There's loans too, but you know what? Let's, let's talk about that another day because that is. That is a [00:26:00] whole other layer of, you've got a liability involved in that and it's deducting and it's all kinds of stuff. But what I will say, I just wanted to
[00:26:08] Dan DeLong: button this up that Ledger artists has said they work with high volume, high Venmo.
Transactions, they've never seen a partial payment.
[00:26:16] Rachel Dauchy: Yeah, I, I think they like, yay for Venmo and yay for PayPal for like thinking with their head screwed on straight for that. Because if they were splitting, then that my life would be a nightmare. So, [00:26:30] Now, in the, in the, um, in the spirit of keeping it simple, we're just going to think about again, this one business where it's just connected to one, one checking account and it's simple and whatever.
[00:26:42] Reconciling PayPal Like a Bank
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[00:26:42] Rachel Dauchy: So then at the end of the month, When we are going to reconcile PayPal, we're literally just going to look at the PayPal statement that's in PayPal. You have it connected as a bank feed. You've done all your transfers correctly and you need to reconcile [00:27:00] PayPal like a bank at the end of the month based on your PayPal statement.
Now, Dan, I want you to think about this.
[00:27:08] Special Circumstances for PayPal Usage
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[00:27:08] Rachel Dauchy: Let's say the business owner doesn't ever, ever, ever make any purchases with PayPal. They're only using it as a means of collecting payments on Shopify or something like that. Now, in that situation, here's a special circumstance. You don't always need to connect PayPal as a [00:27:30] bank.
Why? Because there are a lot of um, advanced connectors out there that can actually post these transactions for you, right? And so you know this because you and I have talked about this a lot, that the connectors, when you map it correctly, that'll actually post the activity from your, um, from your platform, let's say Shopify or something, to your checking account.
So it's posting that activity for you, right? [00:28:00] You then don't need to worry about reconciling a PayPal account, but then guess what happens? Then you find out that they are and they'll post the fees for you, by the way. So then you find out that they've just decided that they want to go ahead and make purchases with PayPal.
Then you find out the hard way and you're like, gosh, darn it. Now I got to connect PayPal to the bank feeds and then pull them in. And then the necessity for connecting them to the bank feeds is usually always so you can [00:28:30] grab the expenses. Um, and that's why, you know, again, like In this world of, it depends, you know, we hate saying that, but it really does because you have to talk to your client and analyze what are they doing in PayPal?
If are they making expenses? Um, and a lot of times I'll say, you know, based on my experience and expertise, if you've got a complex Shopify scenario, let's not make purchases with PayPal. And they're usually like, okay, you know, they really [00:29:00] value what I'm saying. And then I say, okay. Use your business credit card.
Get those points, right? I know, Matt. He's saying, I wish we could block features on people's spending habits. But you know what, Matt, like you are an excellent advisor to your clients to especially in this world of a zillion things to know that when you talk to them and they say, well, what should I do?
You know, I usually say if you're going to your business purchases, you know, use Those credit cards where you know, you're [00:29:30] getting all kinds of points back and rewards and cash back and, and, and utilize those features and don't make the purchases with your PayPal, especially if they're selling a large volume of like little priced things on something like Shopify, which we have people that are doing that to, you know, they're selling like little doodads for like 5.
99 and there's a zillion of them coming in. Um, We, we really don't want money in, money out, money in, money out, and reconciling that [00:30:00] PayPal account. It can get ugly.
[00:30:02] Challenges with High Volume PayPal Transactions
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[00:30:02] Rachel Dauchy: And one thing that we were talking about earlier this morning in our meeting is not only can it get ugly, reconciling your PayPal account with Loans, like Matt said, the more volume and the more money in, money out, money in, money out, especially if you're making purchases, you're going to see something like holds authorization holds and authorization releases.
Those usually clear each other out and are net zero at the end of the month. [00:30:30] But, um, oftentimes if you've got a, a heavy PayPal act, um, activity throughout the month, it won't net to zero. And then, so that's going to be a difference in your, um, PayPal reconciliation. And you might want to park that in some kind of temporary account or something, clearing account or something, which you got to dump that data into a security file.
Yeah. Yeah. So, so that's, that's a
[00:30:56] Dan DeLong: clearing and then [00:31:00] the thing that surprised me the most when, you know, I first started this journey was the statement itself for PayPal looks like nothing you've ever seen before. So it's like, what is that?
[00:31:18] Rachel Dauchy: Yeah, and we have some that we're having like 75, 80 page PayPal statements, and so it's not one of these scenarios where you want to print it out and go through it page by page.
It's [00:31:30] impossible. So, you know, you really, um, what, like, we, um, we don't work with them anymore, but we used to have a really heavy, heavy PayPal client. Um, That Oh, did I cut out
[00:31:43] Dan DeLong: here? Okay, you're still, uh,
[00:31:45] Rachel Dauchy: so they, and we would have to, um, yes, yes, I'm not Jamie, right? And so we would have to dump the data into a CSV, sort it and, you know, net all the, authorization holds and [00:32:00] releases and do it that way.
And then, um, and, and whatever. But now in that situation, we're not posting individual transactions. We're using something like bookkeep and posting a summary of all of the data for the day. And in that situation, we've got a gross sales of several tens of thousands of dollars. And then with the debit side.
Posting to a Shopify clearing at PayPal, clearing and blah, blah, blah. Now I'm getting into something a little more [00:32:30] complicated. So what do you want to talk about that, Dan?
[00:32:34] Dan DeLong: No, go, go right ahead. You know, cause that's, that's the, it's almost seems like PayPal. Is a minefield and you just have to tread lightly and know where you're stepping before you step on something that you end up with an 80 page, um, 80 page statement or, um, You know, just something that, that you, [00:33:00] you don't want an explosion, uh, like that, where you trip off something that, uh, that you don't want to see.
[00:33:07] Rachel Dauchy: Doug is saying, I just say no to PayPal. Well, you know what, that's why you've got to have accounts that are doing PayPal like us. Cause a lot of them will say no. So I will say, I gladly will take them because we love to do PayPal. So, and then I get to charge more for it and now you know why. Right. So, um, so now.
[00:33:27] Handling PayPal Clearing Accounts
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[00:33:27] Rachel Dauchy: Now, let's go back to my scenario [00:33:30] where I was saying, um, you know, simple business, just making the occasional purchase. Let's say you're a business owner and you are not using PayPal to collect money. You just have PayPal so you can buy things online, you know, and you're just buying, um, you know, materials for your business and you're just purchasing, purchasing stuff online.
Connect PayPal to your bank feeds, categorize your, your transfers and your expenses where they need to go. reconcile it up and call it a [00:34:00] day. You don't need to deal with PayPal clearing. When do you need to deal with PayPal clearing? When you are collecting money from, um, your, the business owners collecting money from their customers using PayPal.
The reason you need to use something like PayPal clearing is because, um, and Dan, we talk about this all the time. When you receive a net payout from PayPal. Is that your income? No, [00:34:30]
[00:34:30] Dan DeLong: no,
[00:34:32] Rachel Dauchy: why not?
[00:34:35] Dan DeLong: Cause there's more to it. There's shipping, there's, there's fees, there's other, other things that you might want to categorize, uh, based off of that transaction.
So you don't want to recognize all or nothing to, you know, income. Yeah.
[00:34:52] Importance of Accurate Revenue Reporting
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[00:34:52] Rachel Dauchy: So this is the thing that Jamie and I see the most when we go in and diagnose and do a lot of cleanups, we see that they're posting [00:35:00] payouts to income, not just PayPal, everything. And so we want it. We don't want that thinking. Okay.
Because that's a payout and cash isn't revenue. So in, in what, yeah, exactly, Matt, we need to gross up the number. So, um, Um, we primarily deal with a lot of inventory, so we're selling a lot of stuff, and so they're collecting a payment on, you know, that stuff. And let's say I sell goods for 100, and um, my, my revenue is 100, but I'm paid [00:35:30] out 85.
Because let's say, um, I had to pay 15 in fees. Maybe they're made up of a whole bunch of stuff. Um, so that 85 will come in the bank feed, and people will think, That's my revenue. Well, it's not. And so that's why we utilize a lot of connector tools from anywhere from bookkeep to cinder to connects a new one I'm using.
I know we know we integrate, um, uh, even just plain old one [00:36:00] SAS connector from the, into it has whatever you're using. Those are designed to post your actual revenue, your gross revenue. So like in Shopify, for example, we have gross sales, less discounts, less returns, less shipping income, less tax collected.
And then the offset is money to be expected. That's what I like to call it because it's really explains what it is. That's on the debit side, because as we know, [00:36:30] credit. is revenue. Revenue poses a credit, debits and credits, and then your debit side is going to be your money to be expected clearing account.
And so then when the cash actually comes in from the bank, that's going to be credited to the clearing account. and debited the cash. So it clears everything out, which is supposed to. But, um, we, we want those money to be expected in the clearing accounts. We don't want to post that to revenue. So we, so we really don't want to [00:37:00] just shortcut it and grab that payout and just post it to revenue because you're under, you know, Stating your income and does that affect your tax return?
[00:37:09] Dan DeLong: Of course
[00:37:11] Rachel Dauchy: Big time big time and let's say I under let's say I understate my revenue by hundreds of thousands of dollars Is the irs gonna come after me?
[00:37:21] Dan DeLong: Well, that's why are they? Yeah, it depends on how many new, uh, IRS agents, uh, they have with armed guns, depending on who you believe is going to
[00:37:29] Rachel Dauchy: be
[00:37:29] Dan DeLong: keeping [00:37:30] a pass here.
Yeah, I don't know, like, Joe Biden hired 81,
[00:37:32] Rachel Dauchy: 000. I don't know, maybe they're not looking at Shopify sellers. But, but, and then this is what else. P. S. When I run my Shopify reporting, Why is my, why am I getting texts? I put it on when I run my Shopify reporting, it's not going to match what my daughter's texting me.
Come pick me up from school. Um, yeah, Matt. Yeah. All your other clients too. So you're, you, you got it. This is best practice. [00:38:00] So we want to get everybody working in. Best practice, right? So, and I always say, you want to match your Shopify reporting, because you want to be the best accountant you can be. And, thank you.
So, you want to, you want to, um, you want your reporting to match your QBO. You don't want this discrepancy, and then your business owner going, why is my, P and L saying this and my Shopify reporting is saying this. We like to tie [00:38:30] it out to the Shopify reporting. And so that's what makes us bulletproof. And that's why, um, that's our everything at net deposited.
So anyway, um, so that's why. You've got that PayPal clearing and it's really reconciling your sale with your payment, sale with your payment, sale with your payment, sale with your payment. Boom. Reconcile that at the end of the month to zero.
[00:38:54] Dan DeLong: And then you're going to do that from the statement or you, sometimes if it's too big, you're going to put it into a [00:39:00] CSV or what?
Nope. The
[00:39:02] Rachel Dauchy: statement is only for the PayPal bank account. The PayPal clearing account is literally only your net payment expected, which is on the debit side, Versus your actual payment that came. So you're proving your payouts, your expected payouts. Guess what happens if your total for the day is saying, I'm [00:39:30] expecting 7, 500 worth of PayPal payouts for that day.
And what happens if, What if the payouts come through and it's only 6, 500? And we won't see that usually in the day, we'll see that month when we're reconciling that account. And then Jamie's like, wait a second, like I was expecting 7, 500 in that day and it only paid out 6, 500. Then we go into the PayPal, we go into Shopify, we go into the settings, we troubleshoot and we say to the business owner, Hey, guess what?
We caught [00:40:00] that you're, you were expected 7, 500 and you only got. 6, 500. And then the business owner says, dang it. Like maybe they're withholding money. Maybe they're placing a hold. Like, thank you guys for catching that. It's a big value app. So do you,
[00:40:19] Dan DeLong: as far as your clearing and your holds and such things, how do you set those up in the chart of accounts?
Are they, are they. Separate accounts all together like PayPal. Yes. [00:40:30]
[00:40:30] Both: Yeah. Money to be
[00:40:30] Dan DeLong: expected and then the PayPal balance.
[00:40:33] Rachel Dauchy: Yeah. So the holds are usually only associated with purchasing. So if they're not purchasing, you're not really going to see those holds. Um, And to be honest, like there's not really a situation in which they're holding PayPal payouts.
It may just be that, usually, you know what it'll be? It'll be that the business owner they have, they have the money not transferring or [00:41:00] something like that. And so then, then you let them know it's, we're expecting these accounts that are not coming. And then they're like, you know what? Let me just give you access to all of my settings and PayPal.
You just deal with it. That's, that's where I am now is I usually like, just let me do
[00:41:16] Dan DeLong: it. Is there, is there something you, you wanted to demonstrate or we're just going to talk conceptually about. About the, um, you know,
[00:41:29] Both: I
[00:41:29] Dan DeLong: know you're at the, [00:41:30] you're at your dad's place. So yeah, your dual screen set up and those types of things.
So maybe we might, yeah. And I, and I actually,
[00:41:38] Rachel Dauchy: exactly. And I actually would like to, um, talk about the actual reconciliation process, maybe on its own, and maybe we can do that next week. And then I can demo, because I really just wanted to talk about the idea of it, because. I wanted to describe it in a, in a very logical way and, [00:42:00] um, and I want people to realize it is very logical.
And so if you can understand it that way, you know, and I will say, This is not really for the beginning bookkeeper that doesn't really understand debits and credits. Um, I, I really do highly recommend it's, it's really for, um, people that have a strong background in accounting. And, um, And [00:42:30] so it's cause it can get complex and the ramifications of doing it incorrectly can really screw up somebody's books.
And we, we clean up a lot of errors like this keeps us in business. But, um, but you can learn it, like you can learn it, I promise you. And that's sort of like what I want to get into a little bit more as, um, as I'm actually going to Dan, you and I talked about is I'm going to put together a Paypal checklist of this is what you need to know basically [00:43:00] when I'm dealing with my paypal bank account And I'm dealing with the paypal clearing because the paypal clearing is going to have less stuff the paypal clearing is just For expected payouts.
That's it when you're dealing with oh, I've got the net amount of holds and loans and all these other nonsense going on, that's going to be in your PayPal bank account. And so, um, like Matt said, I mean, he probably sees loan deductions and [00:43:30] then, oh, and then Matt, do you see this where they renew? The loan, and then you're like, what's the loan fee?
You see it in the PayPal statement and you kind of like back into finding the stuff you need to know. Cause do we ever just get notified ahead of time when they secure a new loan? Do you Dan, do they notify you?
[00:43:55] Dan DeLong: Of course not. It's a surprise.
[00:43:57] Upcoming Features in QuickBooks for Auto Reconciliation
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[00:43:57] Dan DeLong: [00:44:00] Um, so we'll, we'll, we'll do that next week where we'll actually go into a little bit more, uh, detail and I wanted to just touch slightly, uh, on, um, a function or a new function inside of QuickBooks about the auto reconciliation, um, function.
And, um, Really, all that does, and it only works with accounts that are connected where the statement fetch will come down [00:44:30] into QuickBooks Online to be able to do that. But really, the only thing that it does is look at the statement, see the ending balance, And see the statement ending, ending date and pre pre fill that for you.
You still have to do all of the other work, uh, that, that is involved with, with that. So it's not like an auto reconciliation process. However, I just, I was a little late getting into, uh, preparation today because, uh, I am part of a beta test that [00:45:00] is actually doing auto reconciliations based off of statements.
Uh, and I am. And I asked them specifically because I was top of mind about PayPal. I'm like, does this actually work for PayPal statement fetch? And they said it does. So I am curious on how this will actually work and we will have like a side by side, a comparison, uh, when I can actually, uh, get in there and tinker around with it.
So, uh, we'll, we'll, we'll hopefully have that with, [00:45:30] um, with, with our, with our next, uh, workshop, but, um, I don't know if it's actually going to be ready. What I was just going
[00:45:37] Rachel Dauchy: to say about that really quick is that, you know, my two cents on that is I think they're trying to test out this AI, like, can we reconcile it all for you?
And it's fine, but, um, I do think, like, my general opinion on all that is if it can take care of, like, the no big deal, easy stuff. Great time saving. And then [00:46:00] we can spend our time on the more complex, you know, cleanup work or something like that. I, that doesn't really bother me, but I, but I'll, you know, it's, I'm guessing it's gotta be really simple.
If you've got charge backs and returns and Um, already, there's a big struggle with returns in PayPal. So, um, As Doug is saying,
[00:46:22] Dan DeLong: trust but verify.
[00:46:23] Rachel Dauchy: Yeah, yeah. That's what
[00:46:26] Dan DeLong: you're there for, is to be able to, you know, verify that [00:46:30] those transactions are actually there. I was super stoked on what I did see. Of course, I had to leave early, so I didn't get the whole Q& A session.
Um, I am, I'm stoked to see if this is, uh, we'll, we'll do a lot of the lion's share of what a lot of us are, are, yeah,
[00:46:50] Rachel Dauchy: and then you can focus on like, Oh, maybe I do have to go into their sales platform and look up, you know, some of the issues with returns or go into Amazon and look at those issues. It's like we were [00:47:00] saying earlier, I mean, there's.
We still have struggles with returns all the time. And I know I was talking to Doug about that before that. Yeah, but what about returns? And so that's always an issue. And in a, in a world now where people are just buying everything online and returning everything, um, that's never going to go away. So I like to think about that in terms of like the real world application.
So, um, yeah, so, so I'm, I'm going to have like a really cool checklist available for [00:47:30] anybody who, um, would like it.
[00:47:32] Conclusion and Future Topics
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[00:47:32] Rachel Dauchy: And I'm going to put it on my website and you can put it on school of bookkeeping and, um, but that'll be free to anybody just to kind of use as a guide. And, um, but yeah, I definitely want to keep talking about this.
[00:47:43] Dan DeLong: All right. So we will see you next week on the workshop Wednesday. One last thing before we go, happy birthday, Rachel. We really appreciate you doing this on your birthday. Uh, so we wanted to wish you a happy birthday and many more to come. And, uh, thank you everybody for, for joining us [00:48:00] in the lively discussion.
Uh, nothing's nothing causes accountants. Uh, more ire than, uh, talking about PayPal, apparently.
[00:48:10] Rachel Dauchy: Not me. I love it.
[00:48:12] Dan DeLong: Yeah. You need professional help. I think that's, yeah.
[00:48:18] Rachel Dauchy: You're not the only one that says that.
[00:48:22] Dan DeLong: All right. Well, we'll see you next time on the workshop Wednesday. Everybody have a great week. [00:48:30]
