How to Reconcile PayPal Transactions for Your Shopify Store (Using A2X)

Thank you everyone so much for joining today. So today we've got myself and Nicole and we're going to talk you through exactly how to handle your PayPal accounting for your Shopify store. So I'm Amy Croman, Product Marketing Manager at A2X. I'll be covering the accounting challenge and how our solution works, giving you a bit of background and context into A2X for Shopify and for PayPal and how they work together. And then I'll hand over to Nicole who is our Training Manager and she's going to give you a live demo so you can see A2X for PayPal in action.

Okay, so let's start with the PayPal reconciliation problem. How do you reconcile your PayPal transactions from Shopify? So, you are probably here because you have been experiencing some of this pain and you might know this problem really well. It's one of the main pain points we hear coming through from Shopify merchants and their accountants, and PayPal is the most common payment gateway we see on Shopify stores.

So, let's walk you through exactly what's happening. Here's kind of the likely scenario or the setup: your Shopify store or your client's Shopify store accepts PayPal as a payment method. So, this means you've got payments flowing through at least two systems. You might have other payment gateways on your site as well, but you'll at least have payments coming through Shopify and then also through PayPal, and you need to match these up in your books. Now, what makes it tricky is that Shopify records the sale, but then PayPal is holding and processing those funds. So, you need to reconcile both sides.

Hopefully, you are reconciling them properly. Now, we're going to assume you're doing this right. And we have a lot of content about kind of e-commerce reconciliations in general. So, if you're wanting to get up to speed on those, definitely have a look at some of our other content. But I'm just going to pull out two things that we often see as an approach that's not necessarily the correct approach.

So, we see a lot of sellers that will just record the whole deposit to sales. A PayPal deposit coming into your bank account is not necessarily the same as revenue. There are a lot of other transactions to consider. There might be fees, there might be refunds, there might be actually other transactions as part of that deposit, and those all need to be considered and accurately accounted for. And then the other thing we see is that sellers or their accountants even will create a manual journal entry to account for PayPal. This can be really time-consuming. It's error-prone, and in this age, no one really wants to be doing things like that manually. So, if either of those sound familiar, hopefully you're in the right place and A2X might be able to help you.

So, you might already be using the A2X for Shopify integration. So, that's a really great first step. It means your Shopify reconciliations are taken care of. So, A2X for Shopify will break down those Shopify payouts. They'll break them down accurately. They'll split out the sales, the refunds, the fees, the taxes, and post that really nice, clean, summarized entry through to your accounting software. And so hopefully this will be nice and familiar. And then you'll see the really nice just one-click reconciliation.

But as we've discussed, Shopify isn't the only place that money is moving. So, you still have payment gateways to reconcile, and you still need to reconcile PayPal. So with the A2X for Shopify integration, it does create an entry for all of your payment gateways. The thing with this entry though—if you have a Shopify store, you're using A2X for Shopify and you have PayPal on that store, your A2X for Shopify integration will create a PayPal entry for you. What this does is it posts it through to a clearing account. As you can see in this example here, you can see the entry and you can see that A2X is posting the money that has been collected through to your accounting software.

The problem with this is that A2X for Shopify isn't seeing the fees that are being collected on the PayPal side as well as any other transactions that might occur within PayPal. So, with this setup, you do need to manually create an entry to reconcile those fees and make sure that this clearing account is clearing out. And this is something we hear from sellers—that they'll go into the clearing account and they'll see that it's not balancing out to zero, and that's when they need to create those entries for fees and just make sure that everything's clearing out. So, it's still—as much as Shopify will capture some of that PayPal information—there still is a manual component to this reconciliation part.

Now there are lots of other options you can use for PayPal. I think PayPal has native integrations with both Xero and QuickBooks. And then there's also data syncing tools that you can use to post information from PayPal to your accounting software. For many sellers, these do work really well. But in our experience, when you have any level of scale and you start kind of receiving more payments through PayPal, there are some things that we do hear about these solutions in terms of causing accounting problems.

So the common ones that we see is too much data in your GL. So this might be something you're really familiar with. You see the PayPal integration posting a bunch of entries through to your QuickBooks or Xero. You might be familiar with that manual clicking of "okay" to accept all of those entries that are coming through. The other thing is that with posting a lot of data through the GL, Xero and QuickBooks have upper limits of the number of entries you can be posting through your accounting software. So if you're posting through every single transaction from PayPal, it can cause a bit of lag in your software, especially when you're starting to get a bit of scale and doing a few transactions on PayPal.

So that's one of the problems. It might be that it doesn't capture all of the different transactions from PayPal and it also might not be doing any consolidation. So you might be getting a lot of information coming through—all of the individual entries—and nothing is summarized. We do sometimes see that FX or foreign currency or different currencies within PayPal aren't necessarily handled correctly. Some tools might miss those conversions or the different exchange rates or the different currencies that you have set up in PayPal.

And just in general, there can be a lot of manual work. So if you have an integration that's working or bringing through that data, but you're still having to go in and do a lot of manual changes and create journals, then it's not really the purpose of the integration. So that's one of the reasons why we built A2X for PayPal.

A2X for PayPal closes the loop particularly with Shopify. It works really nicely with A2X for Shopify, but it will also handle any of the payments or any of the transactions that happen on your PayPal. So, you don't necessarily just need to use it with Shopify. It will capture all of your PayPal activity from withdrawals, fees, transfers, and everything else. So, let's take a bit of a closer look at what that looks like.

When a customer pays via PayPal on your Shopify store, A2X for PayPal will capture that payout. It then will split out the fees. This is a really nice big step, I guess, for anyone that's currently manually accounting for those fees. The A2X for PayPal integration will capture that and you can start to see the benefit. Those fees will be split out and then A2X for PayPal will create one summarized entry per currency per day. So if you have multiple currencies or you operate in multiple currencies on your PayPal account, then you will get one entry per day. So that's a really nice summary posted through. So like I say, it's a summary. It's not posting through every single transaction. It's breaking things really nicely down into the currencies to be posted through. You're not ending up with multiple entries and lots of clutter in your GL.

Okay, so let's take a look at what this looks like in practice. So you can see here I've got an example of the A2X for Shopify entry and then the A2X for PayPal entry on the other side. So the A2X for Shopify entry is going to capture all of the transactions that happen on the Shopify side and it's going to split out that portion that is collected by PayPal. So this might be something you're already very familiar with. You can see that that PayPal clearing line gets posted through to a clearing account. Then the A2X for PayPal entry will have that same line to be posted through to a clearing account.

I'll show you the clearing account on the next slide. So those will balance out, but it will also capture any other transactions that occurred on your PayPal account. So you can see here that there was a PayPal movement. So that might have been some withdrawals or PayPal payments that were made. So you can see here really nicely how the two integrations work together.

This is then an example of the clearing account within Xero, but it works the same in QuickBooks. You can see the one entry coming through Shopify and then the deposit coming through from PayPal. And you can see that those two are clearing out really nicely. So, this is a big pain point that it solves. Often when you're talking about accounting integrations and you hear the word "clearing account," sometimes sellers or accountants can start to become a little nervous because it's pretty common to end up with an unexplained balance or a value in that clearing account that needs to be cleared, and it can be kind of like finding a needle in a haystack to try and figure out what those leftover funds are. So this is a really nice benefit of using A2X for PayPal and Shopify together. As you can see, the clearing account actually clears out to zero.

As I said, you don't just have to use A2X for PayPal with Shopify; it will also capture any other transactions that occurred on your PayPal store and PayPal account. So, as you can see here, this one's just capturing any withdrawals or movements coming out of the PayPal bank account. And as you can see, they're broken down by the different currencies.

And then this is just an example of the A2X for PayPal mapping page. So, you can see here all of the different transactions that have been split out. You can see the clearing lines for Shopify, but then you can also see the payments that have been received from PayPal. So, there's kind of multiple use cases for PayPal. You might just be using the PayPal account to accept money from Shopify and that's great, but then you might also be using it to make other payments or receive payments from suppliers. And so A2X will capture all of that information and it will be included in that nice summarized entry that's posted through to your accounting software.

There's some really nice functionality with the PayPal account as well. So, I guess that's something that A2X is really well known for is being able to provide kind of extra detail and customization. So, you have control over what categories are included. So, this is an example here. If you had another way of accounting for some of your deposits, for example, you might just want to exclude those from your A2X for PayPal entry. I would definitely say this with caution because if you do exclude a transaction, then it might put your entry out and it might not necessarily line up. So we kind of say if this is something you're considering, definitely talk to your accountant or even reach out to A2X if you're considering excluding a category because it might be something that gets forgotten and then gets confusing down the track, but there is the functionality there.

And then you also have the opportunity within the settings to split out whether your payments are grouped or by individual supplier. If you're receiving payments from people on PayPal, you have the option to group those all together. Or if you're wanting just individual suppliers, you can split that out in your entry as well. Brilliant. Okay, so that's a bit of context. I'm now going to hand over to Nicole who can go into a bit more detail with the demo.

Hi, I'm Nicole. I'll be showing you guys a demo of the PayPal Shopify integration then. And so to start with, just to add a PayPal account, you can go over here to the left sidebar where we have all of the accounts listed. And then at the bottom here, we have "create a new account." You can click on that and then you can just click PayPal and then it'll bring you to a new account. You can get everything connected.

Once it's all connected to PayPal and your accounting system and the mapping's all done, it'll look like this. So, the standard A2X setup here, but this time we have the latest payouts, the date ranges, and the currencies and their total amount. Today, we're going to be looking at this May 13th to 14th payout. And so, here it is. And then we can open it up and see all the transactions in it. So, here we see the payments received from Shopify going to the clearing account. We can also see those fees, which is great that A2X can see this. Makes that reconciliation easier. And then we see the PayPal movement going to a PayPal bank balance account.

And so that PayPal movement account manages the PayPal bank balance. And so that should match to the PayPal bank balance in your PayPal account at the end of each day. And so we can resend this over to QuickBooks. Normally you wouldn't resend things, but this is our demo account, so it's all good. And so once that's sent, it'll give us a little notification there that it's been sent over. And so we can go right into QuickBooks in the bank balance. And so here we're in the PayPal Shopify clearing account. We can already see that A2X for Shopify sale gateway PayPal amount for that 65.71. We'll just give this a little refresh so we can see that new transaction that came in from PayPal.

Here we go. We have that A2X for PayPal amount of that 65.71. And so those two clearly net off to zero. And so on the accounts and taxes page, all of these transactions are going to a current asset account except for these fee transactions. Those are going directly to a PayPal fee expense account. And then we see some transactions here like any chargebacks, deposits coming into the PayPal bank account. We have the PayPal bank movement account here again, managing the balance. And then we have the PayPal Shopify clearing. Any other payments received or payments sent will come in here to a current asset account. You can choose to break them out if you like too. So that way you could send some of the payments sent directly to their expense account if you're not accounting for those sales or those payments anywhere else.

We also see some transfers here and so those are for, let's say you have two PayPal currencies AUD and USD and you're moving money from one to another. We account for those along with the currency conversion as well. And then if you're withdrawing some money from the PayPal bank account to an actual bank account, we'll bring those in here and then you can match that deposit into your actual bank account to this account and it clears off nice and easy.

And that leads us to our Q&A. So we do have a few questions that have come through. Okay, so this is a specific pricing question. So if my client is on a mini plan for A2X Shopify, will they need to add the PayPal plan? So yes, you will need to add the PayPal plan. In many cases, it might work out to have the A2X for Shopify and PayPal separate, but it might be more cost-effective to consider the A2X multi-channel plan. Multi-channel just means like multiple channels connected. So it means that you'd be able to connect Shopify and PayPal under the same plan. It might be more cost-effective. So if you're not sure, it will come down to the number of connections that you need and your order volume. So again, reach out to our customer success team and they'll be able to have a look at your specific account and recommend the best one.

Okay. So right now, this question looks like it's a bit of a clarification between using the Shopify and PayPal integrations. It says, "Right now, my Shopify entries from A2X show one account for the Shopify PayPal clearing account. What you're saying is that this new subscription will break that into one entry into the PayPal fees and payment. Is that correct?"

Yes, essentially. So, in each individual payout, we'll see the amount that needs to go to the clearing account, that net amount. We'll see the fees and then the bank balance movement. And so, it is one entry, multiple lines that then make sure to clear off that Shopify PayPal clearing account for you automatically. Yeah, it's almost like two pieces to the puzzle, like the Shopify and then the PayPal and everything works really nicely together.

Okay, great. Next question. We have the PayPal account reconciled for Feb already. What is best practice for transitioning? What would you recommend, Nicole?

So, as Amy mentioned, doing a nice clear month-end is usually best. You can reach out to us and every PayPal account comes with a nice onboarding session. So, there's no worry. We'll help you get it set up right away. We'll talk you through the transition period and make sure that we're posting over as of that one date, making sure everything's flowing smoothly. But yeah, it's usually as of end of month we stop using the previous integration and disconnect it and then the first of the next month start using the A2X integration.

Awesome. The next question actually lines up really nicely with that because it says: "Can the A2X integration be switched on with an effective historical or only a future date i.e. an upcoming month end?"

Yeah, good question. So A2X can go back in time and start at a historical date or if you decide you want to bring the data in and then start from a future date, you're welcome to do that as well. With A2X, it's always we bring in the data; it's up to you to decide when you want to start sending things over, whether it's in the past or the future.

Okay, I think that might be all of the questions. But just to reiterate, you can go in and create a free trial account. If you subscribe, you can then get access to free onboarding. So the customer success team will be able to help you get set up or if you have any other questions just reach out to the customer success team. You don't have to have an A2X account to ask some questions. So reach out. Otherwise jump in and have a trial and see how it works for you. Thank you everyone so much for joining the webinar, for attending, and yeah, reach out if you've got any other questions. Otherwise, look forward to seeing how you get on using A2X with PayPal.

Hi, I'm Nicole. I'll be showing you guys a demo of the PayPal Shopify integration then. And so to start with, just to add a PayPal account, you can go over here to the left side bar where we have all of the accounts listed. And then at the bottom here, we have create a new account. You can click on that and then you can just click PayPal and then it'll bring you to a new account. You can get everything connected. Once it's all connected to PayPal and your accounting system and the mapping's all done, it'll look like this. So, the standard A2X setup here, but this time we have the latest payouts, the date ranges, and the currencies and their total amount.

Today, we're going to be looking at this May 13th to 14th payout. And so, here it is. And then we can open it up and see all the transactions in it. So here we see the payments received from Shopify going to the clearing account. We can also see those fees which is great that H2X can see this makes that reconciliation easier. And then we see the PayPal movement going to a PayPal bank balance account. And so that PayPal movement account manages the PayPal bank balance. And so that should match to the PayPal bank balance in your PayPal account at the end of each day. And so we can resend this over to QuickBooks.

Normally you would resend things, but this is our demo account, so it's all good. And so once that's sent, it'll give us a little notification there that it's been sent over. And so we can go right into QuickBooks in the bank balance. And so here we're in the PayPal Shopify clearing account. We can already see that Hwax for Shopify sale gateway PayPal amount for that 6571. We'll just give this a little refresh so we can see that new transaction that came in from PayPal. Here we go. We have that HX for PayPal amount of that 6571. And so those two clearly net off to zero.

And so on the accounts and taxes page, all of these transactions are going to a current asset account except for these fee transactions. Those are going directly to a PayPal fee expense account. And then we see some transactions here like any chargebacks, deposits coming into the PayPal bank account. We have the PayPal bank movement account here. Again, managing the balance. And then we have the PayPal Shopify clearing. Any other payments received or payments sent will come in here to a current asset account. You can choose to break them out if you like too. So that way you could send some of the payments sent directly to their expense account if you're not accounting for those sales any or those payments anywhere else.

We also see some transa or transfers here. And so those are for let's say you have two PayPal currencies AUD and USD and you're moving money from one to another. We account for those along with the currency conversion as well. And then if you're withdrawing some money from the PayPal bank account to an actual bank account, we'll bring those in here. And then you can match that deposit from into your actual bank account to this account and it clears off nice and easy.