Paypal Loans (also applicable to Shopify Loans)

Rob_the_Tea_GuyRob_the_Tea_Guy Member Posts: 1

Wave Accounting really does not have a way of accounting for these loans without using journal entries. As you know, PayPal transactions can be automatically downloaded into Wave Accounting.

Wave Accounting wants to treat loans as liabilities (which they are). I treated these loans as Equity infusions to my business. These loans are only secured by me personally so, I treat the them as equity.

So I created a workaround which allows me to use the Wave downloaded transaction to skip manual Journal Entries.

Steps

  1. Create a new Equity account. go to Chart of Accounts > Add An Account > Equity > Other Equity. Name the account “PayPal Loan - Personal” and save.
  2. Go to Accounts > Transactions and either create or modify your Paypal loan proceeds as income to your new equity account “PayPal Loan - Personal”.
  3. Loan repayments that Paypal auto deducts on each sale are labeled “PayPal Working Capital [Payment, Completed]” when Wave auto downloads them.
  4. Change the Category from “Uncategorized Expense” to “PayPal Loan - Personal”. This is found on the menu drop down under Equity - all the way at the bottom of the drop down menu.

In Reports, Go to Balance Sheet and look under the heading Equity and your “PayPal Loan - Personal” will show netted out with all the repayments made. Clicking the highlighted balance will show you the loan and the repayment history.

Once you repay the loan principal, change the auto downloaded repayments to Bank Service Charges to reflect the PayPal Loan Fee. (You may have split a repayment transaction.)

The downside of doing it this way is that your loan repayments do not show as repayments to your business loan Liability. They show up on your balance sheet is an Equity Balance.

I’m not an accountant, but I believe this method is okay if you run your business as a sole proprietor or partnership.

If you are C or S corp, you best tell your accountant about this book keeping maneuver so your interest expense can be accounted for.

If anybody else has a better way of accounting for PayPal or Shopify loans please do comment on this.

Wave Accounting - Please make it easier for loan repayments to be handled via download rather than journal entries which are cumbersome and prone to error.

Comments

  • ErikErik Administrator Posts: 187 admin

    Hi @Rob_the_Tea_Guy this is actually easier to do in an updated version of Wave! A summary of the workflow on this updated version would be as follows:

    1. Create a loan account as a liability
    2. Categorize a loan deposit to a bank account as a "Transfer from" the loan account. This automatically DEBITS (increases) the receiving account and CREDITS the liability account (indicating that you now have a liability to pay this off)
    3. Categorize any loan repayments/withdrawals as a "Transfer to" the loan account. You would also be able to split this withdrawal into a loan repayment and additional fee payments if applicable. This automatically CREDITS (decreases) the bank account and DEBITS the liability account (decreasing your liability)

    This workflow is available for all downloaded/pre-existing transactions.

    While this is not available in your account right now, please know that we are actively moving all of our users over to this updated platform, with over 90% of users already migrated!

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