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DevgPhoto
Level 1

Recording product sale done through Paypal and cost of goods

I own a photography business and accept Paypal. Funds received from Paypal are downloaded from the Paypal bank feed, and duplicated in the Checking account bank feed once Paypal transfers the funds to my checking account. The way I record Paypal payments from the bank feed is as follows:

 

1) Bank feed downloaded from PAYPAL is recorded as the actual income category (ex: Portraits Income). Additionally, the download of the paypal fee is recorded as "Merchant Fees"

2) Bank feed downloaded from CHECKING account (which is a duplicate of above) is recorded as a "transfer from Paypal"

 

That works for me without issue.

 

Here is where I have questions:

I have a client who ordered photo prints from an online gallery service. The gallery service I use handles everything and sends payment with Paypal. The order process is as follows:

1) The gallery service sends a payment to paypal for the total amount of the sale which includes the shipping and sales tax.

2) Immediately after, Paypal sends a payment from my Paypal account balance to the gallery service for the costs associated with the order (the cost of the prints from the photo lab + the shipping)

 

Here is an Example workflow:

1) Customer orders prints from the gallery and the total cost for them (prints + shipping + sales tax) is $42.92. 

2)  I receive $42.92 into my Paypal account

3) Immediately after, Paypal sends $19.42 back to the gallery service. This is for the cost of the prints from the photo lab and the shipping

 

Paypal fees are $1.54

My Paypal balance is now $21.96

 

I'm not sure how to record any of this, including sales tax. My thoughts are below. Is this correct:

 

1) Paypal feed download of $42.92 to be recorded as "INCOME - Sales of Prints"

2) Paypal feed download of the $19.42 payment to be recorded as "EXPENSE - Supplies + Materials"? ( I don't think I can use Cost of Good sold). Or should I use a new Expense category?

3) If downloaded, the $1.54 from Paypal is recorded as "Expense - Merchant Fees"

4) Paypal Balance is now $21.96

4) Checking acct feed download of $21.96 recorded as Transfer from Paypal (even though it does not match #1)

 

Is this wrong?

 

I'm not sure how to record the expense incurred, how to record the sale, and how do I record the sales tax I owe the state?

 

For the sales tax:

Maybe I should generate an invoice for the $42.92 then immediately mark it as paid (matched to #1 above which is "INCOME - Sales of Prints") so the sales tax is recorded?

8 Comments
Catherine_B
QuickBooks Team

Recording product sale done through Paypal and cost of goods

You are on the right track on how these transactions should flow, DevgPhoto.

 

You can record these transactions in QuickBooks so you can match them in the in your Paypal bank feeds. Also, you have to set up your sales tax feature to track them. 

 

Here's how: 

 

Enter the income or sales ($21.96) as a Sales Receipt transaction and select the affecting income account. 

  1. Go to the Plus icon and select Sales Receipt
  2. Enter the customer's name the date of the transaction. 
  3. Make sure to select the correct account in the Deposit to field. 
  4. Input the PRODUCT/SERVICE and its Rate
    (Note: You'll have to manually calculate the item's rate to match the amount which is $21.96)
  5. Once done, Save and close

Expense ($19.42 and $1.54)

  1. Click the Plus icon again and choose Expense
  2. Enter the necessary information. 
  3. In the Category column, choose the expense account for the ($19.42) and on the second line, the expense account for ($1.54).
  4. No sales tax should be tracked since this is an expense. 

After these transactions have been recorded, you'll have to match them to the downloaded Paypal transactions. 

 

I'm here to help you if you have additional questions. 

DevgPhoto
Level 1

Recording product sale done through Paypal and cost of goods

Thanks. I sort of understand what you are saying. But it's not 100% accurate reporting of the sales tax. Sadly the gallery service I use is a pain!

 

The customer ordered $33 of product

Shipping is $7.25

Total is $40.25. Sales tax is applied to this (which by law is correct)

Sales Tax paid is $2.67. This is what I have to report to the state.

 

So I'm still thinking this process but can you confirm or correct?

 

1) Generate an invoice (or sales receipt????) for $33. Include the $7.25 Shipping charge. And mark it as taxable. Quickbooks will record the total as the $42.92 and know I owe State Sales tax of $2.67

2) Download from Paypal feed $42.92 and record as "Income - Print sales"

3) Download from Paypal feed $1.54 expense and record as "Expense - merchant fees"

4) Download from Paypal feed the $19.42 payment made to gallery service as "Expense - ????"  (Materials and Supplies is ok???)

4) Download from Paypal/Checking account $21.96 as a transfer between accounts

 

At this point, I've recorded how much sales tax I owe via the invoice or sales receipt. And I've recorded the $42 income from sales, $1 merchant fees, and $19 expense. 

 

Now I just need to mark the invoice as paid/match to the "Income - Portrait Sales" I recorded?

Mark_R
QuickBooks Team

Recording product sale done through Paypal and cost of goods

Thanks for getting back to us, @DevgPhoto.

 

Allow me to chime in and share some additional insights about recording product sales.

 

Yes, you'll just need to mark the invoice as paid. This way, the sales tax for this invoice will be recorded in QuickBooks. Let me guide you the steps to get this done.

 

Here's how:

 

  1. Click the Sales tab in the left navigation bar.
  2. Choose Invoices.
  3. Select the desired invoice from the list to open it.
  4. Under the Balance Due amount, click the Receive payment button in the top right corner.
  5. Enter the Payment method and any other necessary information.
  6. Click Save and close.

This article offers additional info on recording customer payments: How to Record a Customer Payment.

 

You may also want to watch this YouTube video about receiving payments: https://youtu.be/wDb-KAgfeic

 

I wish you and your business continued success. Please let me know if you have any other questions about recording product sales.

Customer finally paid your invoice? Need to receive that payment in QuickBooks? Here's how.Start for free at QuickBooks.com. https://goo.gl/ctQRCVRun your wh...
DevgPhoto
Level 1

Recording product sale done through Paypal and cost of goods

OK so it sounds like I have the following correct:

 

1) How to record the sale amount through Paypal, how to record the fees paid, and how to report the transfer to my checking account.

 

2) How to generate an invoice that will be marked as paid. The purpose is only for sales tax recording.

 

The only question I have is what is the expense for what I had to pay the photo lab (prints and shipping) that they took out of my Paypal account. I don't think I can use "Cost of Goods sold".

 

Is it appropriate to use "Expense - Supplies and Materials" or should I create a new expense account such as "Expense - product purchase"

HoneyLynn_G
QuickBooks Team

Recording product sale done through Paypal and cost of goods

Hello there, DevgPhoto.

 

I appreciate you coming back to us for additional support. I'm here to help you correct your recordings in QuickBooks Online.

 

You can either enter the transaction as an invoice or sales receipt. It only depends on how you receive the payment. Enter it as an invoice if your customer agrees to pay you at a later date. On the other hand, you'll use a sales receipt when your customer pays on the spot for goods or services.

 

For more insights, check out this article: Should I use an Invoice or a Sales Receipt?.

 

When entering the transaction, make sure to select the Undeposited Funds account on the Deposit to field.

  1. Click the Plus icon.
  2. Choose Invoice or Sales Receipt.
  3. Enter the customer name.
  4. On the Deposit to field, enter Undeposited Funds.
  5. Enter the necessary information.
  6. Click Save.

 

If it's an invoice transaction, you have to enter and link its payment to mark it as paid. For the instruction, follow this link: Record a payment for an invoice.

 

Next, create a deposit transaction. You can add lines for the expense and merchant fee.

  1. Click the Plus icon.
  2. Choose Bank Deposit.
  3. Select the transaction.
  4. Enter the bank fee and expense as a line item in the "Adds fund to this deposit" section, select your new Bank Fee expense account and enter a negative value that reflects the bank fee amount. 
  5. Click Save and new or Save and next.

 

That should already match your Paypal and QuickBooks transactions, DevgPhoto.

 

Let me know there's anything else you need. I'm still here to help you more. Have a good one.

DevgPhoto
Level 1

Recording product sale done through Paypal and cost of goods

I'm a bit confused. Here is what I am thinking:

 

1) I can create a sales invoice or a receipt.  (I never tried a receipt before)

 

2) The Paypal bank feed will be downloading the TOTAL sale, the payment I made for the prints and shipping, and the Paypal fee. The checking account bank feed will be downloading the deposit to the checking account from Paypal, which is just recorded as a transfer.

 

a) The invoice or sales reciept will be for the total amount, and this will record sales tax I owe

b) I think I know how to record the rest except for what I had to pay for the prints and shipping. I don't think I can use "cost of goods sold". Is it OK to make a new expense such as "Good Purchased" or "Prints Purchased".......OR should I use the "Supplies and Materials" expense?

JonpriL
Moderator

Recording product sale done through Paypal and cost of goods

Glad to have you back and thank you for the details you've shared, @DevgPhoto!

 

Allow me to chime in for a moment and share additional inputs about recording your sales.

 

To start, prints and shipping fee doesn't necessarily be recorded in any specific accounts. Because it must be included in the total cost of your purchased items.

 

In addition, it doesn't affect your Cost of Goods Sold either. Thus, there isn't a need to create a new expense account.

 

Lastly, here's an article you can read to learn more about your Cost of Goods Sold: What is FIFO and How is it Used for Inventory Cost Accounting?

 

Feel free to leave a comment below if you have any other questions about recording your sales and expense transactions. I'll be always around to lend you a helping hand.

DevgPhoto
Level 1

Recording product sale done through Paypal and cost of goods


@JonpriL wrote:

Glad to have you back and thank you for the details you've shared, @DevgPhoto!

 

Allow me to chime in for a moment and share additional inputs about recording your sales.

 

To start, prints and shipping fee doesn't necessarily be recorded in any specific accounts. Because it must be included in the total cost of your purchased items.

 

In addition, it doesn't affect your Cost of Goods Sold either. Thus, there isn't a need to create a new expense account.

 

Lastly, here's an article you can read to learn more about your Cost of Goods Sold: What is FIFO and How is it Used for Inventory Cost Accounting?

Feel free to leave a comment below if you have any other questions about recording your sales and expense transactions. I'll be always around to lend you a helping hand.


OK so I received $42 into my Paypal (total sale from the gallery), then Paypal immediately sent back $19  (cost to order the prints+shipping). 

 

The bank feed download will capture both.

 

I need to categorize the $19 paid as something. It's an expense.

I know it's not COGS. But I'm not sure what expense account it would be.

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