Confused about transfer clearing with a paypal account full of transactions that need to be categorized by account. If I use the transfer clearing account then I cannot allocate the spending to the proper account. I’m sure I am doing it wrong… So I buy a widget using paypal and then my bank account is debited the funds for the transaction. I put that in a transfer clearing account, but If I put the widget purchase in the paypal account into the transfer clearing account then I cannot put it in the small tools account it belongs in. What am I missing? Thanks…
There is no need for a clearing account when using PayPal or a credit card.
You are using PayPal or the credit card to pay for something. Both PayPal and credit cards should be set up as bank accounts in Manager. See Set up a bank or cash account | Manager and Set up credit cards | Manager. When you buy something, enter a payment and select the bank account from which funds are obtained (meaning PayPal or the credit card). That is all there is to recording the payment for the purchase.
If you are importing your PayPal statement, that is the time to categorize transactions by allocating them to appropriate accounts. You can automate all or most of this process with rules. (Because of changes within the past few days, the Guide on this is out of date. But it will still explain the concept. See Import bank statements | Manager. Rules are now set up as receipt rules and payment rules under those tabs. They are also more sophisticated than described for the old Bank Rules settings page.)
Next comes the question of inter account transfers. Credit cards are typically paid off based on monthly statements. For this, you transfer money from a regular, demand deposit bank account using an inter account transfer operation. See Transfer money between bank and cash accounts | Manager.
Transfers for PayPal accounts can be more complex, because you have options about how to set them up. If a purchase transaction is transferred immediately to a bank account or credit card, you need to enter an inter account transfer for every purchase. If you have an arrangement that retains balances in your PayPal account as is periodically replenished, you would make transfers then. Hopefully you get the idea.
Another alternative is to bypass recording anything in PayPal and enter it into Manager only when it hits your traditional bank account or credit card, as though the transaction involved that source of funding only. In effect, you would be treating PayPal as nothing more than a delivery service in that case.
Regardless of how you handle PayPal, though, the important thing is to understand that purchases are allocated to appropriate expense accounts when first recorded, not during any subsequent transfer. The money has been spent at that point, the expense incurred. The expense account allocation is recorded when the money leaves the business. The various transfers just involve shuffling money within the business from one pocket to another.
Very helpful! Thank-you so much for your time and effort.
However, if you are using the “import bank statement” process, then transfers between bank / credit card accounts need to be processed via a clearing account.
This statement is true, but deserves a little amplification. Use of a clearing account in this situation would be involved only if you are not recording the payoff of the credit card statement contemporaneously, but instead are relying on imports of both the bank and credit card statements to separately pick up the withdrawal from the bank and deposit to the credit card. That transfer of funds between accounts, whether recorded manually via inter account transfer or by import of two statements, is unrelated to allocation of expenses to expense accounts, which is what @ohmary originally asked about. The account allocation occurs as part of the transaction recording the expenditure, not the transfer.