Paypal merchant account and accounting for PayPal charges

Hi everyone, I`m new here but have been using quickfile for the past few months since I set up my limited company.

Long story short, I have always excepted payments via cheque, bank transfer, cash or Barclays Pingit. However due to my business bank account being a 10 mile trek I have decided to try and move away from cheques and have bought a Paypal here chip and pin card reader.

This is where I have the problem, with any other payment method I can match the transaction to my bank feed & Invoice, But with the Paypal here payment paypal takes a fee of 2.5% from the total so the final amount I transfer to my bank equals less that the invoice amount resulting in a part paid invoice.

What is the correct way to do this, I was thinking of only doing the invoice for the amount I receive, or should I do an invoice for the full amount then put the charge down as a purchase, which if thats the case there will be no matching transactions on my bank feed etc ?

Have figured most of the rest out pretty much hassle free but I`m just not sure how to go about doing this corectly. Any advice is greatly appreciated.

Lastly, I`d just like to also say thanks for this excellent free software. I had looked at a few (including paid subscription software) and found this to be the best by far.


Glad to hear you like the software. What you describe here is a very common scenario in bookkeeping and the way to handle this is to think of the PayPal merchant account as a separate bank account. In your bank management area create a bank account under the Merchant Accounts and Online Payment Services header (just click the grey plus icon).

Create a new bank account and call it something like “PayPal Holding Account”, no sort code or account number required. Now whenever you get paid through this terminal, pay the gross total of this invoice into this new account. Whenever you receive the bulk funds on your current account simply tag these as a payment from the new PayPal holdings account.

Now over time you will see all your sales depositing into the account and the occasional transfer out to your current bank account. The only missing part of the puzzle now is the 2% charge you are paying to PayPal, this should equal the remaining balance on the account, so what you can do is periodically enter a money out transaction on the PayPal account to bring it back to zero then tag that as a payment to a supplier called PayPal Merchant Fees, or something akin to this.

And that is pretty much it! There’s also a similar post here regarding GoCardless…same principle applies.