How to treat Paypal income?

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Basically wondering what’s the best way to treat payments taken in via Paypal. Seems like it’d make sense to transfer to my bank account say once a month, then import bank statement as mentioned here:
https://www.bullethq.com/community/question/hi-i-am-in-the-process-of-setting-up-the-accounts-for-a-business-i-am-starting-for-an-online-tarot-course-my-site-offers-a-large-amount-of-free-information-and-viewers-have-asked-about-a-donate-butt/
However sales will include VAT, Paypal fees don’t include VAT apparently….Should I ignore Paypal fees and just take the amount sent to my bank account (after paypal fees) as gross income? (and work out a sale price that compensates for the fees)
Or the other option seems to be to include the total amount (inc the bit paypal takes), then expense the fee part but that seems messy and silly. (especially as the amount would inc VAT on most, but not the fee)
Any thoughts?
Thanks!
 
 

1 answer

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PeteF November 6, 2016
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The correct way to treat this is the second way you’ve suggested, which is a bit messier, but more correct. If we look at the accounting entries for all of this, and use an example of your sales as €123 (incl VAT)

  1. Gross income minus VAT as your sales, the VAT on the sales goes straight to the VAT accrual (it’s not part of your sales) until it’s paid. 
    DR Cash/Accounts payable (Balance sheet) €123
    CR Income (Income statement) €100
    CR VAT Accrual (Balance sheet) €23
  2. Paypal fees are an expense
    DR Selling & Distribution expenses (Income statement) €3.57
    CR Cash – PayPal (Balance sheet) €3.57

The handy thing about Bullet is how it looks after the VAT bit for you. You will have to just account for the PayPal fees as a separate expense.

All the best,
– Pete F

#answer-4256

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