Paypal bookkeeping in XERO
Reconciling your PayPal transactions into Xero is the best way to match all the records of your PayPal account summaries like bank statements, expenses, fees, invoices, and refunds accurately in Xero. In order to get the reconciliation process up and running, you need to sync all the PayPal transaction data or PayPal account summaries into your Xero account.
Linking your Paypal account to Xero is a simple process. I will guide you on how to link your Paypal account into Xero and set up an automatic bank feed.
You need the advisor or standard user role to add a payment service.
I assume you already have a Paypal account.
I link my personal Paypal account. There is one additional step while linking your business Paypal account. After you log in, you need to input some information about the business and yourself.
Login to your Xero account and click Accounting, then Bank Accounts.
Click Add Bank Account.
In the search window, search and choose Paypal.
Click Login & Connect Accounts.
Log in to your Paypal account and Click Agree and Connect to authorise Xero.
Choose the currencies you would like to connect.
Click on the date highlighted in blue and select the date you would like to import transactions from. Click Finish.
Paypal bank reconciliations
Once Paypal account is connected to Xero, you will be allowed to create 5 types of transactions:
Paypal sale transaction
Paypal fee transaction
General withdrawal transaction
General currency conversion (if you use more than 1 currency)
Spent money transaction
If you use more than 1 currency, you will have to set up separate bank accounts for each currency.
1. Reconciling Paypal sale transaction
Simply match a sale transaction with the invoice.
2. Reconciling Paypal fee
Before you reconcile the Paypal fee, I recommend creating a new account called ‘Paypal fees’ so you can track them. If the transaction fee already appears in Xero, you can match it. If there is a need to create one, click create and choose a Paypal fees account.
3. Reconciling General withdrawal transaction
General withdrawal transaction has to be reconciled as a transfer in Xero - not income, expense, or anything else. Click transfer and select a bank account to which the transfer is made.
Click ok and come back to the reconciliation screen of your bank account where the transfer was made to. If it’s done correctly, Xero would match these transactions.
4. Reconciling General currency conversion
It needs to be reconciled as a transfer between two, different currencies Paypal accounts in XERO. For instance, USD 14.20 converted to AUD 19.17. Bear in mind that Xero won’t match these transactions as they are of different amounts. This is how it looks like in the AUD Paypal account and USD Paypal account. As you can see, there is a Received money transaction at the AUD Paypal account and a Spent money transaction at the USD Paypal account.
In order to reconcile it, click transfer and select the correct bank account. In the Amount AUD window, write down the converted amount and click reconcile.
Come back to the bank account where the transfer was made to. If it’s done correctly, Xero would match these 2 transactions. Click ok.
5. Reconciling spent money transaction
Whatever you buy, for instance, office supplies, pay your vendors or pay the professional fees, create a new transaction or match the bill you added to Xero.
If you would like to learn more about reconciling your Paypal bank accounts or need further assistance reconciling bank accounts and resolving reconciliation discrepancies, reach out to Oh digits.