To import PayPal into QuickBooks Desktop, create a bank account named PayPal, download your PayPal activity, and bring it in as a Web Connect (.qbo) file linked to that account. Record sales at their full amount with PayPal's fee as an expense, and treat each withdrawal to your bank as a transfer, matched once on both sides.
Creating a PayPal bank account in QuickBooks Desktop
PayPal belongs in QuickBooks Desktop as its own account of type Bank. Money arrives in it, money leaves it, and it carries a balance, which is how a checking account behaves too. Giving PayPal its own account keeps its activity out of your real bank register and lets you reconcile it against PayPal's own figures.
Open Lists > Chart of Accounts, choose Account > New, pick Bank and name it so nobody can confuse it, such as "PayPal Business". If the company holds more than one PayPal account, add the last four characters of the account's email or ID to each name. Enter the opening balance as the PayPal balance on the day before the first activity you plan to import.
Why not a credit card or other current asset?
A PayPal balance is money you hold, not money you owe, so a credit card account would flip the signs of every line. An "Other Current Asset" account can hold the balance, but a bank account is the type that fits both the money and a Web Connect import. A file whose account type disagrees with the QuickBooks account causes its own class of errors, covered in QBO file account type mismatch.
Which PayPal download format can Desktop's Web Connect read?
Web Connect reads one file type: .qbo. Intuit's page on fixing Web Connect import errors says a .qbo file is the only type Web Connect can read. So whatever PayPal gives you, the file that reaches QuickBooks Desktop must end in .qbo.
PayPal's help article on downloading your transaction history lists PDF, Quicken, QuickBooks, CSV and TAB as the formats on offer, and allows up to 12 months per request from up to seven years back. The steps there run from History, through the download icon and a custom report, to a Download button once the report is ready.
Check the extension before anything else
PayPal's page names a "QuickBooks" format without saying which QuickBooks file it produces. Download it and look at the file's extension. If it ends in .qbo, you can import it as it is. If it ends in anything else, Web Connect will not take it. In that case, download the CSV instead and convert it to a QBO file, which also gives you a chance to delete rows you do not want before they reach the books.
Keep each file to one month
Twelve months fit in one PayPal request, but one month per file is easier to check. After each import you can compare the PayPal account's register balance with the month-end balance PayPal reports, and a difference points to one month instead of a whole year.
Importing the PayPal file and linking it to the PayPal account
Import the file in QuickBooks Desktop with File > Utilities > Import > Web Connect Files, select the .qbo file, and when asked where the transactions belong, choose "Use an existing QuickBooks account" and pick the PayPal account. The choice you make at that prompt is normally remembered for later files, so it pays to get it right the first time.
The steps, in order
- Take a backup of the company file.
- Sign in to your Intuit account inside QuickBooks Desktop if prompted, which the QuickBooks Desktop import and export guide says Web Connect imports require.
- Choose File > Utilities > Import > Web Connect Files and pick the PayPal .qbo file.
- Link it to the existing PayPal account, never to "Create a new QuickBooks account" unless you have not made one yet.
- Open the Bank Feeds Center, review each line and assign accounts, using the rules in the sections below.
- Compare the register's ending balance with PayPal's balance for the same date.
If the file went to the wrong account
The link between a downloaded account and a QuickBooks account can be changed for future files, but lines already imported stay where they landed. Changing the Web Connect account in QuickBooks Desktop covers both the relink and the clean-up.
PayPal fees in Desktop: gross sales or net amounts?
Record PayPal sales gross in QuickBooks Desktop: the full amount the customer paid as income, and PayPal's fee as a separate expense. PayPal's activity shows the gross, the fee and the net for each sale. Booking only the net hides the fee and understates sales, which distorts sales tax figures and margins.
A worked example of six PayPal lines
The lines below are an example month, with made-up names and figures. "Net" is what changed the PayPal balance.
| PayPal line | Gross | Fee | Net | Desktop treatment |
|---|---|---|---|---|
| Payment from Example Customer A | 200.00 | -6.10 | 193.90 | Sale of 200.00, fee of 6.10 to merchant fees |
| Payment from Example Customer B | 85.00 | -3.27 | 81.73 | Sale of 85.00, fee of 3.27 to merchant fees |
| Payment to Example Software Co | -29.00 | 0.00 | -29.00 | Expense, software subscriptions |
| Refund to Example Customer B | -85.00 | 0.00 | -85.00 | Refund against the original sale |
| Transfer to bank account | -250.00 | 0.00 | -250.00 | Transfer to Business Checking |
| Payment from a friend (personal) | 40.00 | 0.00 | 40.00 | Owner equity, or leave out of the file |
Making the fee its own line
A Web Connect line carries one amount. If the file holds the net of 193.90, open the line in the register and split it: 200.00 to the sales or income account and -6.10 to a merchant fees account. If you convert PayPal's CSV yourself, a cleaner method is to write the gross and the fee as two rows on the same date, so each imports as its own line. Either way, the PayPal register ends at the balance PayPal shows.
If you invoice customers in QuickBooks and they pay through PayPal, record the payment against the invoice, then match the PayPal line to it, rather than coding the line straight to income. The Stripe version of the same set-up, with its payout reports, is in importing Stripe payouts into QuickBooks Desktop.
Recording a PayPal withdrawal to your bank once in Desktop
A PayPal withdrawal to your bank account is a transfer between two of your own accounts, so QuickBooks Desktop should record it once, as a single Transfer Funds entry from PayPal to checking. Both imported lines are then matched to that one transfer instead of being added as income or expense.
The trap is that both imports carry the movement. The PayPal file shows "Transfer to bank -250.00", and a few days later the bank file shows "PAYPAL TRANSFER 250.00". Added as new, the bank line looks like income and the PayPal line like an expense. Sales then rise by money you already counted when the customer paid.
The order that avoids a double
- Import the PayPal file first and spot the withdrawal line.
- Record a Transfer Funds entry from the PayPal account to the bank account for that amount, dated the day of the withdrawal.
- Match the PayPal line to the transfer during review.
- When the bank file arrives, match its deposit line to the same transfer.
The bank deposit may post a day or two after PayPal's date. That gap is normal, and the amount is what pairs the lines. If a line was already added before you noticed, the guide to manually adding bank transactions in QuickBooks Desktop explains how to remove your own copy without deleting the downloaded one.
PayPal refunds, holds and personal payments in the Desktop register
Most PayPal lines are sales, fees or withdrawals, but three other kinds need deliberate handling in QuickBooks Desktop. Refunds reverse an earlier sale. Holds and releases move money in and out of availability without changing what you earned. Personal payments do not belong in the business books at all.
Refunds
Record a refund against the sale it reverses, as a refund or credit to the same customer and income account. Coding it to an expense account inflates both income and costs. When PayPal returns part of its fee on a refund, record that return against the merchant fees account so the fee nets down.
Holds, reserves and releases
PayPal sometimes holds funds from a payment and releases them later. A hold does not mean the sale did not happen. If the activity shows a hold and a matching release, the two cancel, and neither belongs in income. Check that they net to zero across the month. A hold still in place at month end is a timing difference worth noting next to the reconciliation.
Personal payments
Money from friends, family purchases and personal transfers have no place in business income. The cleanest fix is to delete those rows from a CSV before you convert it, which a .qbo file downloaded directly does not let you do. If personal lines are already in, code them to an owner equity account so the PayPal balance still ties. If the PayPal account is mostly personal, think about opening a separate business account and importing only that one.
When the only record of a PayPal month is a PDF statement, SimpleBankConvert is being built to turn the PDF into a QBO file that Desktop's Web Connect accepts, one statement at a time. Accounts are not open yet, and Get started is where to leave your email.