Okay, so I’m running a small business and a small aspect of it is selling stuff on Ebay.
I’ve signed up with Intuit’s Quickbooks service.
I’ve created accounts for Paypal, local checking, and cash.
Handling the checking and cash accounts makes sense to me. No trouble there.
I’m looking at my Paypal account, though, and I’ve got an entry that reads like this:
Payment From Uncle Cecil
Date Apr. 14, 2008
Status Completed
Amount $79.63 USD
Fee -$2.61 USD
Okay, fine.
Uncle sent me $79.63 and Paypal charged me $2.61 for the privilege of receiving Cecil’s payment.
I open up Quickbooks Online.
I’m starting to enter this transaction as a deposit.
What would be conventional here?
Do I make a deposit for $79.63 from Uncle and then come back into the ledger and put in a debit on the same day for $2.61?
Do I just make it a $77.02 deposit from Uncle and carry on with my life?
I know that the IRS doesn’t really care as long as the end of the year entries on the ledger add up, but I’d like to use industry standard practices in maintaining this ledger.
Any tips?
I would advise you to talk to your accountant. But, I would make the deposit of $77.02 otherwise it’ll be hell balancing your books at the end of the month. Personally, 99.99% of the time, I only make a deposit for the actual amount that will go into the bank. Otherwise what will happen is that when you balance your books, your bank statement will say you have a deposit of 77.02 and you’ll have to clear both the 79.63 debit and the 2.61 debit (credit).
Doper biz owner here. You should track the full amounts in, and the full amounts out. You want to see where the money is coming from and going to. Under a real live heavy duty audit, only showing a deposit of sale-fees might look like you were missing 3-5% of every transaction.
Being able to see what you spend your money on can be just as critical as how much you are making since every dollar you spend is another dollar not in your pocket. In this way it may discover a benefit to you to pursue other payment options and you will have hard numbers to compare it to.
Its much easier to not utilize some basic information now rather than wish you had it two years from now.
I’m an accountant with nearly 30 years experience. I’m not familiar with Quickbooks Online, but here is how I would handle the entry:
I would record the deposit of $77.02. I would credit Ebay Sales (or similar revenue account) for $79.63, and debit Paypal Fees (or similar expense account) for $2.61.
I have a small business and I use Quickbooks. Every time I get money from a credit card transaction, fees are taken out and the only thing that gets put into Quickbooks is the amount that got put into my bank (basically I started out using QB as just a glorified check register).
Every time I do that I totally wish I did it like KittenKat says - one transaction with a split.
Unforunately, I didn’t have that actual data available to me previously because our merchant provider, Wells Fargo, sucks a big one. But now that I’ve switched providers and actually have the numbers better available to me, I might start doing that.
I suggest you track it, for reasons drachillix describes. Neither the IRS nor my accountant has ever asked what’s the deal, but it would have made things a heck of a lot easier for me to understand when I was deciding which new merchant to switch to.
I don’t use Quickbooks - but I use Quicken for household accounts and there’s the concept of a “split transaction”. In your example, this would mean I’d record a transaction in the amount of 77.02, click the “split” button, and record profit of 79.63, and fee of -2.62.
This way, when I run reports I can show totals deposited to the account, or total profits, or total fees (by selecting categories I want included in the report). This is how I do things like loan payments, for example; if i’m paying 100 dollars on my checking account, against the car loan, I record a transfer to the car loan for 100.00, and on the same transaction put interest of five. The checking account side shows a transfer out of 100, and the car loan shows a net payment of 95, but if I look at the split, I see 100 from checking, and -5.00 interest.
I’d be very, very surprised if Quickbook doesn’t offer something similar when recording transactions.
Good input so far.
Whee!
If I quit the small business, half of the reason will be the hassle of accounting. Time is money, and accounting/bookkeeping is CERTAINLY time…
Okay.
Thanks for your input everyone.
I’ll start a pit thread later about the “Statements” Paypal offers and their complete lack of anything besides daily balances…