Handling Deposits Net of Fees  

Recently we received a question about how to handle deposits that come into the bank account net of fees. Since we are in the midst of covering income accounts on our Chart of Accounts Grand Tour, now seems like a great time to cover this topic.

Here is an example:  A donation of $100 is deposited into your organization’s bank account for $99.00 after the $1.00 fee kept by the merchant processor.

Your instinct tells you that you should be giving the donor credit for the full $100. Your instinct is right! But what’s the best way to do that?

You have a few options.

Option 1 – Create individual transactions.

If you are relying on QuickBooks as your donor database, you probably want to create a sales receipt for each donation so you can capture the name of the donor and run reports on donors. In the example above, create a sales receipt for the $100 donation and save it to the Undeposited Funds account.  (See more on Undeposited Funds below.)

Next create a deposit. In QuickBooks Online, under “Add funds to this deposit,” enter your bank or merchant fees expense account in the first line under the Account column. Then enter the $1.00 fee as a negative number. (Don’t worry about the Received From column. Optionally you can note “merchant fees” or something similar for the Description.) The net deposit will now total $99. In QuickBooks Desktop, simply add a line in the deposit window beneath the sales receipt being deposited. Select the bank fees expense account in the “From Account” column and enter the $1.00 fee as a negative number under Amount. Again your deposit total should equal $99.

Now the correct deposit amount will be recorded to the bank account; the donor gets full credit for the amount of the donation and you have captured the merchant fee expense.

Undeposited Funds Options in QuickBooks Desktop and Online

In QuickBooks Online, Undeposited Funds is found on the Sales Receipt or Receive Payment entry forms under the “Deposit to” drop down box. In QuickBooks Desktop, you have an option for how Undeposited Funds works with these forms. Click on the Edit drop down menu, then Preferences. Click on Payments and select the Company Preferences tab. There you can check or uncheck the option to “Use Undeposited Funds as a default deposit to account.”  We usually suggest leaving the option checked so each time you save a sales receipt or payment, the amount is automatically saved to Undeposited Funds. If you uncheck this option, you will get a “Deposit To” drop down box on Sales Receipt or Receive Payment entry forms similar to QuickBooks Online.

Option 2 – Create batch transactions.

Adding a line to the deposit of each sales receipt for the merchant fee can turn into a lot of work. So here’s an idea – batch record your deposits and the related fees. In this case you would enter all the sales receipts and payments on invoices received through PayPal or the merchant processor at the gross amounts. Then create one deposit entry dated for the last day of the month to record the deposit of all the month’s credit card sales and related fees for the entire month.

A variation on this option, if you don’t need to record each transaction separately, is to batch record in one lump sum all of the donations or sales for the month. You can use one sales receipt or skip the sales receipt and post income directly into the bank account using the Make Deposits window. Organizations that use an external donor database or external software to track sales to customers may prefer this approach.

The batch option works especially well with PayPal which provides a Financial Summary Report with amounts for gross sales and total fees charged for the entire month.

Option 3 – Automate entry of net transactions.

Use Connect to PayPal in QuickBooks Online or other third party software for other merchant processors.

Connect to PayPal in QuickBooks Online will let you create sales receipts from the bank feed at the gross amounts and will record the related fees to a PayPal Fees expense account. The advantage is that it should be easier to create a sales receipt for each transaction. The disadvantage is you need to record a sales receipt for each transaction as opposed to using a batch method as described in Option 2.

Here is a detailed step-by-step article on Connect to PayPal that we thought was useful. The author includes screen shots and tips on using Connect to PayPal. This connection process was recently improved by Intuit and we think it looks much better now.

For Stripe users, you can use Sush.io. This app links your Stripe transactions to QuickBooks, including creating sales receipts and the merchant fees.  Sushi.io has an extra fee associated with it but it will automatically create the receipts and the deposits for you, reducing the labor involved in recording your transactions.

Wrap Up

The method you use to get PayPal or credit card transactions into QuickBooks at the gross amounts and to properly record the related fees will depend on your circumstances. Sometimes old fashioned manual entry is the best approach if you have only a few transactions or if you can batch enter activity monthly. Consider how much detail you need to capture in QuickBooks so you can run the reports you need. The bank feed connection for PayPal and other software options keep improving each year, so you truly have a variety of great options from which to choose.

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1 Comment

  1. Charidy on September 3, 2019 at 8:11 am

    I really loved this article! It gave me some new insights I never really thought about before.

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