Shopify Payments, Stripe and Afterpay all work the same basic way: the processor collects your sales, takes its cut, and sends you a batch deposit. You reconcile each deposit back to the orders inside it. PayPal is different, and treating it like the others is one of the most common reasons a PayPal clearing account never quite reaches zero.
PayPal doesn't send you a payout. It holds a balance. Money comes in, fees and refunds go out, and the balance sits there until you withdraw some or all of it. For your books, that means PayPal behaves much more like a bank account than like a clearing account, and the month-end proof changes to match.
How PayPal money reaches you from Shopify
Shopify's getting paid guide lists PayPal Express Checkout as a provider with its own way of moving funds, and gives its payout as "By PayPal". The money from a PayPal order never passes through your Shopify Payments payouts. It lands in your PayPal account. (Shopify's PayPal page notes that Express Checkout isn't available to merchants in France or the United States, who use a different arrangement. This post is about the Express Checkout set-up.)
So each PayPal order creates two records that you have to bring together:
- in Shopify, a sale at the gross amount the customer paid, GST included;
- in PayPal, the same gross payment arriving, then a fee coming off it.
The only bank line you will see is a withdrawal, and it covers whatever happened to be in the balance at the time, not any particular set of orders.
Treat PayPal as a bank account in Xero
Xero connects to PayPal as a bank feed. According to Xero's PayPal page, once you set up the feed, "your transactions are imported into Xero each day, ready for reconciliation." With the feed in place, PayPal has its own bank account in your chart of accounts, and its balance in Xero should equal the balance PayPal reports.
That makes the posting pattern simple:
- PayPal sales from Shopify go into the PayPal account at gross, the same way you post sales from any other gateway.
- Fees, refunds and chargebacks come out of the PayPal account as they happen.
- A withdrawal is a transfer from the PayPal account to your operating bank account. It isn't income, and it isn't something you match to orders.
The mistake to avoid is matching a withdrawal straight against Shopify sales. A $5,000.00 withdrawal might mix last week's sales, this week's, and a refund from last month, so matching it to orders leaves you chasing timing differences rather than errors.
What moves the balance
These are the events you will see, with the treatment PayPal sets out on its Australian business fees page (last updated 13 October 2026).
| Event | Effect on the PayPal balance | What the fees page says |
|---|---|---|
| Domestic sale | Gross payment in, fee out | Commercial transactions: 2.90% plus a fixed fee of 0.30 AUD |
| International sale | Gross payment in, higher fee out | The variable fee goes up by 1.00 percentage point |
| Refund | Full refund amount out | No fee to refund, but "the fees you originally paid to receive the payment are not returned to you" |
| Card chargeback | Disputed amount out, plus a fee | 15.00 AUD settlement fee, unless the transaction is eligible for Seller Protection |
| Currency conversion | Converted at PayPal's rate | A conversion fee above the base rate: 3.0% generally, 4.0% for some listed transaction types |
| Withdrawal to your bank | Balance out, transfer in | Transfer between your own accounts |
- Domestic sale
- Effect on the PayPal balance
- Gross payment in, fee out
- What the fees page says
- Commercial transactions: 2.90% plus a fixed fee of 0.30 AUD
- International sale
- Effect on the PayPal balance
- Gross payment in, higher fee out
- What the fees page says
- The variable fee goes up by 1.00 percentage point
- Refund
- Effect on the PayPal balance
- Full refund amount out
- What the fees page says
- No fee to refund, but "the fees you originally paid to receive the payment are not returned to you"
- Card chargeback
- Effect on the PayPal balance
- Disputed amount out, plus a fee
- What the fees page says
- 15.00 AUD settlement fee, unless the transaction is eligible for Seller Protection
- Currency conversion
- Effect on the PayPal balance
- Converted at PayPal's rate
- What the fees page says
- A conversion fee above the base rate: 3.0% generally, 4.0% for some listed transaction types
- Withdrawal to your bank
- Effect on the PayPal balance
- Balance out, transfer in
- What the fees page says
- Transfer between your own accounts
The refund row is the one that catches people out. Say a customer pays $120.00 for an order. The domestic fee is 2.90% of $120.00, which is $3.48, plus $0.30, so $3.78 in total, and your balance goes up by $116.22. If you then refund the full $120.00, the balance goes down by $120.00. The $3.78 fee stays spent. If your refund entry assumes the fee comes back, the PayPal account will be $3.78 out for every refunded order.
A worked month
Here is an October for a store whose PayPal sales are all domestic. Every figure would come from the PayPal monthly statement in practice. These are illustrative.
| Line | Amount |
|---|---|
| Opening balance, 1 October | $2,410.55 |
| 150 PayPal orders, gross | $18,600.00 |
| Fees on those orders: 2.90% of $18,600.00 plus 150 × $0.30 | −$584.40 |
| Six full refunds | −$720.00 |
| One chargeback | −$240.00 |
| Chargeback fee | −$15.00 |
| Withdrawals to the operating account | −$16,500.00 |
| Closing balance, 31 October | $2,951.15 |
- Opening balance, 1 October
- Amount
- $2,410.55
- 150 PayPal orders, gross
- Amount
- $18,600.00
- Fees on those orders: 2.90% of $18,600.00 plus 150 × $0.30
- Amount
- −$584.40
- Six full refunds
- Amount
- −$720.00
- One chargeback
- Amount
- −$240.00
- Chargeback fee
- Amount
- −$15.00
- Withdrawals to the operating account
- Amount
- −$16,500.00
- Closing balance, 31 October
- Amount
- $2,951.15
The fees line is 2.90% of $18,600.00 ($539.40) plus 150 fixed fees of $0.30 ($45.00). It includes the fees on the six refunded orders, because those fees weren't returned.
The proof is that $2,951.15 is the closing balance on PayPal's statement and also the balance of the PayPal bank account in Xero on 31 October. If the two agree, every movement has been posted. If they don't, the difference is usually one of the items in the next section.
Fees and GST
This is where PayPal parts company with some other processors. The only GST reference on PayPal's fees page is a monthly fee for the Website Payments Pro hosted solution or API, listed at 25.00 AUD and marked "includes GST". As Taxed reports, clause 12.2 of PayPal's Australian product disclosure statement says: "Unless otherwise expressly set out in this PDS, our fees are GST exempt."
In practice, that means the per-transaction fees in the worked month carry no GST to claim. Compare Stripe, whose fee data has its own tax lines (we cover that in reconciling Stripe payouts). If a GST credit appears against PayPal transaction fees in your ledger, find out why before you lodge the BAS. How your organisation codes these fees is a question for your tax adviser. What the PDS says is the starting point.
Three things that end up in suspense
Refund fees that never came back. As in the example above, a refund entry that reverses the original fee leaves the PayPal account wrong by the fee on every refunded order.
Shopify's third-party transaction fee. Shopify's third-party providers page says these fees "apply to all transactions processed through third-party and alternate payment gateways", but "if you elect to use Shopify Payments as your primary payment provider, then PayPal transactions are exempt". If the fee applies to you, it appears in the Transaction fees section of your Shopify bill and not in your PayPal balance. Look for it there, not in PayPal.
Currency conversion. PayPal charges its conversion fee as a margin above the base exchange rate, so it shows up as a gap between the amount converted and the amount received. Post it as a cost, not as an unexplained difference.
The month-end check
- Download the PayPal monthly statement for the month. PayPal's statements help page explains where to request it.
- Agree total PayPal gross sales in Shopify for the month with total payments received on the statement. Timing differences at either end of the month should be small and explainable.
- Agree total fees on the statement with the PayPal fees account in Xero.
- Agree refunds and chargebacks, including any chargeback fees.
- Agree each withdrawal with a matching deposit in the operating bank account.
- Confirm the closing balance on the statement equals the PayPal account balance in Xero.
If step 6 agrees, the PayPal side of the close is done. If it doesn't, steps 2 to 5 tell you which kind of movement is missing.
Bringing it back to your close
PayPal is easier to close than it looks, once you stop treating it as a payout stream. Hold it as a balance, post every movement to it, treat withdrawals as transfers, and prove the closing balance against the statement. The same habit of decomposing every movement and checking the parts against an independent total is what we built Vert to do across Shopify Payments, Stripe, PayPal and Afterpay. If you would like to see it on your own month, you can join the pilot.