For the first part this guide should be of some help.
http://community.quickfile.co.uk/t/handling-payments-from-merchant-accounts/8865
The latter part sounds correct, the purchase invoice is marked as paid in full from the PayPal account and then the other £100 is a transfer from your current account to the PayPal account. It probably doesn’t look right because the payment reference on the PayPal entry on your current account makes reference to the supplier you made the payment to, although in reality it is just a transfer to the PayPal account as the supplier will only see a payment from PayPal. You could split the payment and mark the invoice as paid in part from both accounts but it won’t make any difference to the totals on the balance sheet etc, and everything is all tied together for auditing purposes either way.