Should PayPal payouts be recorded as deposits or transfers in QuickBooks Online?
Transfers. If PayPal is set up as an account in QuickBooks Online, the money you move to your bank was already counted as income when the sale landed in the PayPal account. Recording the payout as a deposit counts the same money as income a second time. The payout is just your own money changing pockets, and QuickBooks calls that a transfer.
The test: has this money been counted before?
Ask one question of every bank line: has QuickBooks already seen this money? A customer paying you through PayPal is new income, counted once, in the PayPal account. The payout that moves your balance to the bank is the same money again. New money is a deposit; money QuickBooks has already counted is a transfer or a match.
How to record a payout correctly
- When the payout appears in your bank feed, look for a Match to an existing transfer first.
- If there is no match, choose Record transfer (or categorise the line as a transfer) from the PayPal account to the bank account.
- Never use Add with an income category on a PayPal payout line.
- If you have been recording payouts as deposits, run a profit and loss report: income will be roughly doubled on PayPal sales. Recategorise the deposits as transfers to correct it.
Where the manual fix breaks down
One payout often bundles many sales minus fees, refunds and holds, so the transfer amount matches nothing obvious in the PayPal register. Getting the match right means reconstructing the batch by hand, which is exactly the work that piles up at month end.