When setting up Bank Accounts in QuickBooks Pro, Premier or Enterprise, or in any of the QuickBooks Online versions, you will need to add all of your business checking and savings accounts. Once you have done that, you should set up bank downloads for each of these accounts, so that all of your bank transactions can be downloaded into QuickBooks, which will save you a lot of time as you won’t have to enter these transactions manually. Personal savings or checking accounts should not be added unless you often use those accounts to pay business expenses or to receive business income.
You should also set up a Petty Cash bank account in QuickBooks, in order to record any expenses paid by cash.
If you use PayPal to pay business expenses and receive business income, then you will probably need to set up a PayPal bank account in QuickBooks. Unfortunately, you cannot download PayPal transactions into QuickBooks the way you can download bank and credit card transactions directly into QuickBooks. From your PayPal Activity page you will need to download an iif file, but you can only specify one QuickBooks income and one QuickBooks expense account for all of your transactions. Once these downloaded transactions are imported into QuickBooks, you can then change these expense and income accounts to the correct ones if needed. When deciding which expense account to choose for the download, pick the one that you use more than any other. For example, if you use PayPal often to purchase postage online, then choose Postage and Shipping as the one expense account you are allotted. This will minimize the number of accounts you have to change after your import is complete.
If you are only using PayPal to pay expenses, and you are not receiving income through PayPal, then you don’t need to set up a PayPal bank account. The Vendor name for each expense paid through PayPal will be listed on the PayPal withdrawal from your checking account.
If you are only using PayPal to receive income, and you are not paying expenses through PayPal, then you don’t need to set up a PayPal bank account. When you transfer the income from PayPal to your business checking or savings account, you will specify the income account at that time under Deposits in QuickBooks. You can split the deposit from PayPal into multiple income accounts if you want, or you might just want to create a PayPal income account.
You may be wondering why you will probably need to set up a PayPal bank account if you are paying expenses and receiving income through PayPal. When you receive income through PayPal, unless you quickly transfer all of that income out of PayPal, some of the income that is sitting in PayPal may be used to pay expenses through PayPal. If that happens, those expenses will not show up as withdrawals from your checking account because the money was taken from PayPal, and therefore the expenses will not be recorded in QuickBooks.
If this only happens very infrequently, then there is a way to record those expense payments in QuickBooks using an Equity account. You would set up an Equity Account called Owners Investment or another name like that. Then by double clicking on the Owners Investment account, you open up the register for that account, and you enter those expenses there.