How do I record income if I’m paid through Stripe, PayPal, and bank transfer?

Understanding the core idea: “income” is about what you earned, not where it landed

When you get paid through Stripe, PayPal, and direct bank transfer, it can feel like you have three different streams of money to track. In reality, you have one accounting job: record the income you earned, then separately record the fees, refunds, taxes, and transfers that happen along the way. Payment processors and banks are simply routes the money takes. Your bookkeeping should reflect (1) what you sold, (2) what you are entitled to receive, and (3) what you actually received, including the differences caused by fees and timing.

A common mistake is recording income based on whatever lands in your bank account. That method might be convenient, but it can blur what you actually earned—especially when Stripe or PayPal deduct fees, hold reserves, process chargebacks, or pay out on a delay. If you only book the net deposit, you understate income and bury fees inside the income figure, which makes your financial reporting less useful and can complicate taxes and reconciliations.

The clean approach is to record your gross sales as income, record processor fees as expenses, and treat transfers between accounts (like Stripe payout to bank, or PayPal withdrawal to bank) as transfers—not income. Then you reconcile each platform so your books match reality.

Choose your accounting method first: cash basis vs accrual basis

How you record income depends heavily on whether your books are kept on a cash basis or an accrual basis. You don’t need to become an accountant to use either approach, but you should commit to one method and apply it consistently.

Cash basis (simpler for many small businesses)

Under cash basis accounting, you record income when you actually receive money (or when it becomes available to you in a practical sense). For bank transfers, that’s usually the day the money arrives in your bank. For PayPal, it’s commonly when funds hit your PayPal balance (or when they reach your bank if you treat PayPal as “not really cash” in your system). For Stripe, it might be when Stripe captures the payment, or when Stripe makes it available/pays out—depending on how you define “received.”

Cash basis is often easier for very small operations, especially when you aren’t extending credit or dealing with complex invoicing. But it can get messy if a platform holds funds, if you have a lot of refunds, or if you use “available balance” differently across processors.

Accrual basis (more precise for tracking what you earned)

Under accrual accounting, you record income when it is earned—typically when you deliver the product or service or when you invoice the customer—regardless of when the money arrives. In this model, Stripe and PayPal receipts often reduce accounts receivable or increase a clearing account, and the timing of payouts becomes less important to revenue recognition.

Accrual basis can give you a truer picture of performance, especially if you do project work, subscriptions, retainers, or large invoices. The tradeoff is that it requires more structure and more careful handling of “clearing” accounts and receivables.

A practical note

Many businesses keep their internal management books in one way and then adjust for tax reporting as needed. The key is to avoid a hybrid approach where some income is recorded on receipt and other income is recorded on invoice with no clear rule. That’s where double-counting and missing income happens.

Decide how you will treat Stripe and PayPal in your chart of accounts

Before recording transactions, decide how Stripe and PayPal will appear in your bookkeeping system. You have two common options:

Option A: Treat Stripe and PayPal as “bank-like” accounts

In this approach, you set up an account called “Stripe Balance” (an asset account) and another called “PayPal Balance.” You record customer receipts into those accounts, then record payouts/withdrawals as transfers to your business bank account. This makes reconciliation straightforward because you can match the Stripe balance changes to Stripe reports, and likewise for PayPal.

Option B: Use “clearing” accounts for each processor

A clearing account is like a temporary holding bucket used to track what you’re owed from the processor and to break out fees. For example, you might have “Stripe Clearing” and “PayPal Clearing.” When a customer pays, you record gross income and increase the clearing account. When Stripe pays out, you reduce the clearing account and increase your bank. Fees, refunds, and chargebacks also flow through the clearing account. This approach is especially useful under accrual accounting, and it can also work well under cash basis if you want clean fee separation.

Which option is better?

If you frequently keep money sitting in PayPal or Stripe for a period of time, treating them as bank-like accounts is intuitive. If you want the cleanest separation between gross sales and net deposits, and you want to tie everything to detailed processor reports, clearing accounts are usually the most robust.

Record income the right way: gross sales, then fees, then payouts

Regardless of platform, the most consistent structure is:

• Record the customer payment as gross revenue (and sales tax/VAT collected if applicable).

• Record the processor fee as an expense (or as a contra-revenue account if you prefer, though expenses are more common).

• Record the payout/transfer to your bank as a transfer (asset-to-asset), not revenue.

This structure keeps your revenue reporting clean, makes your profit margin accurate, and makes reconciliation feasible.

How to record Stripe payments

Stripe has a few moving parts: customer charges, fees, refunds, disputes/chargebacks, and payouts to your bank. Recording Stripe income correctly is mostly about not confusing “charge” with “payout.”

Scenario 1: A simple card sale with a Stripe fee

Let’s say a customer pays £100. Stripe takes a £2.90 fee, and later Stripe pays out £97.10 to your bank.

Best-practice bookkeeping flow using a Stripe clearing account

Step 1: Record the sale (gross)

• Debit: Stripe Clearing (or Stripe Balance) £100.00

• Credit: Sales Income £100.00

Step 2: Record Stripe fees

• Debit: Payment Processing Fees (expense) £2.90

• Credit: Stripe Clearing £2.90

Step 3: Record the payout to your bank

• Debit: Business Bank Account £97.10

• Credit: Stripe Clearing £97.10

Notice what happened: revenue is recorded at £100 (what you earned), fees are separately recorded as £2.90, and the payout is simply moving money from Stripe to your bank.

Scenario 2: Stripe payout that batches multiple transactions

Stripe payouts often include many charges minus fees and refunds. The payout amount rarely equals a single sale. That’s why the clearing account method works so well: it allows you to record each sale and fee individually (or in summary), and then the payout just reduces the clearing account by the payout amount.

If you prefer fewer entries, you can post a summarized daily or weekly journal entry from Stripe reports:

• Total gross charges → Sales Income

• Total fees → Payment Processing Fees

• Total refunds → Sales Returns/Refunds (contra-income) or Refund Expense

• Net amount → Stripe payout to bank (through Stripe Clearing)

The tradeoff is detail. Summaries are fine if you can still reconcile and if you can identify unusual items like disputes. Many businesses do daily summaries for volume and keep disputes as separate entries.

Scenario 3: Refunds in Stripe

Refunds can be recorded in a few ways depending on how you want to present them in reports. A common approach is to use a “Sales Returns and Allowances” contra-revenue account so your gross revenue remains visible.

If you refund £100 (full refund), then:

• Debit: Sales Returns/Refunds £100.00

• Credit: Stripe Clearing £100.00

If Stripe also returns or does not return fees (this varies by location and policy), you’ll record the fee component based on what actually happened. If fees are not refunded to you, then your fee expense remains. If they are refunded, you would reduce your fee expense (credit fees) or record a negative fee expense.

Scenario 4: Chargebacks and disputes

Chargebacks are more than “just a refund.” They usually include the reversal of the original charge plus a dispute fee, and sometimes the funds are removed before the case is resolved. The important thing is to categorize the dispute fee separately so you can see how much disputes cost you over time.

A typical flow might include:

• Debit: Chargeback Losses (expense) or Sales Returns (depending on your preference) for the disputed amount

• Debit: Dispute Fees (expense) for the dispute fee

• Credit: Stripe Clearing for the total removed from Stripe balance

If you later win the dispute and Stripe returns the funds, you reverse the chargeback loss and record any fee reversal accordingly.

How to record PayPal payments

PayPal can function like a payment processor and like a wallet. You might receive customer payments, pay suppliers, and then transfer funds to your bank. This creates two common pitfalls: (1) counting PayPal transfers to bank as income, and (2) missing the fees because PayPal nets them off before you notice.

Scenario 1: Customer pays you via PayPal, and PayPal deducts fees

Suppose a customer pays £100 through PayPal, PayPal deducts £3.40, and you later withdraw £96.60 to your bank.

Using a PayPal clearing account:

Step 1: Record the sale (gross)

• Debit: PayPal Clearing £100.00

• Credit: Sales Income £100.00

Step 2: Record PayPal fees

• Debit: Payment Processing Fees £3.40

• Credit: PayPal Clearing £3.40

Step 3: Record withdrawal to bank

• Debit: Business Bank Account £96.60

• Credit: PayPal Clearing £96.60

Scenario 2: You pay business expenses directly from PayPal

Many businesses pay for software, advertising, or contractors directly from PayPal. That’s perfectly fine, but you should record it as an expense paid from PayPal, not as something “outside the books.”

If you pay £50 for a subscription from PayPal:

• Debit: Subscriptions Expense £50.00

• Credit: PayPal Balance (or PayPal Clearing) £50.00

This ensures your profit and loss statement reflects your true costs and your PayPal balance in your books matches PayPal’s actual balance.

Scenario 3: PayPal currency conversion

If you receive payments in multiple currencies, PayPal may convert currency at a rate that includes a spread. For bookkeeping, you generally want to record the sale at the value in your functional currency and then record any conversion difference as a foreign exchange gain/loss (or as part of fees, depending on your preference and the detail available).

A practical approach is to:

• Record the gross sale using the amount PayPal reports as the gross in your currency (or the invoice value).

• Record PayPal fees separately.

• Record any difference between expected and received due to conversion as FX gain/loss.

This keeps your revenue consistent and makes your FX costs visible instead of burying them in sales.

How to record bank transfers (direct payments) from customers

Bank transfers are usually the most straightforward because the money goes directly from the customer’s bank to yours, often with little or no fee. But the simplicity can hide a problem: if you don’t tie each bank receipt to an invoice or a sale, you can lose track of what the payment was for, especially when bank references are unclear.

Scenario 1: Customer pays an invoice via bank transfer (no processor)

If you’re on accrual accounting and you issued an invoice first:

• At invoicing: Debit Accounts Receivable, Credit Sales Income.

• At payment: Debit Bank, Credit Accounts Receivable.

If you’re on cash basis and you didn’t record the invoice separately, you can record income at the moment the bank deposit arrives:

• Debit: Business Bank Account

• Credit: Sales Income

Scenario 2: Bank transfer fees or short payments

Sometimes a customer pays from abroad and intermediary fees are deducted, or the customer pays slightly less than the invoice. In these cases, you have choices:

• Record the full invoice as income and record the missing amount as bank charges (expense) if it was a fee.

• Record the missing amount as a short payment and follow up with the customer if it’s actually still owed.

The right answer depends on whether the missing amount is truly a fee you must bear or a receivable you can collect.

Prevent double-counting: the #1 risk with multiple payment channels

When you use Stripe, PayPal, and bank transfer together, double-counting usually happens in one of these ways:

• You record Stripe/PayPal sales as income when the customer pays, and then you record the Stripe/PayPal payout to your bank as income again when it hits the bank feed.

• You record PayPal receipts as income, then also record the same receipts when you import sales data from an e-commerce platform.

• You mix invoice-based recording (accrual-like) with deposit-based recording (cash-like) inconsistently.

The fix is simple in concept: decide the “single source of truth” for recording sales. If you record income from your invoicing system or your sales platform, then Stripe/PayPal entries should mostly be about settlement and fees, not income. If you record income from payment processor reports, then don’t also import sales from elsewhere without mapping them carefully.

Recommended structures you can adopt today

Below are three practical systems. Choose one based on your transaction volume and the level of detail you need.

System 1: Low volume, cash basis, bank feed driven (simple but disciplined)

This is the simplest approach, but you must still separate income from fees properly.

• Record bank transfer receipts as Sales Income.

• For Stripe/PayPal payouts landing in your bank, split the deposit into: Sales Income (gross) and Processing Fees (expense), using the processor’s payout report to determine the correct gross and fee totals.

• Do not treat the payout as “one net income number.” Split it.

This method works best when your volume is low enough that looking at the payout report each time is feasible.

System 2: Moderate volume, cash basis, use Stripe/PayPal balance accounts

Set up “Stripe Balance” and “PayPal Balance” as separate accounts. Record receipts into those balances, record fees as expenses, and record transfers to bank as transfers. Your bank feed will show transfers (not income) from Stripe/PayPal.

This gives you cleaner reporting and easier reconciliation than System 1 without requiring full accrual structure.

System 3: Higher volume or more complexity, accrual basis with clearing accounts and receivables

If you invoice customers or need precise monthly reporting, use accounts receivable and clearing accounts. You recognize revenue when earned, then use Stripe/PayPal clearing to handle settlement, fees, refunds, and payout timing. This is the most “accounting correct” approach and scales well.

Handling sales tax/VAT or similar taxes collected at checkout

If you collect VAT, sales tax, or another consumption tax from customers, that portion is generally not your income. It’s money you collect on behalf of a tax authority. Recording it properly matters because it affects how much you think you earned and how much you’ll later owe.

A typical approach is:

• Record gross receipt as: Sales Income (net of tax) plus Tax Payable (liability) for the tax amount.

• Processor fees remain an expense.

For example, if a customer pays £120 including £20 VAT, you would credit Sales Income £100 and credit VAT Payable £20, with the debit to Stripe/PayPal/bank depending on where you record the receipt.

When you file and pay the VAT, you reduce the VAT payable and reduce your bank balance. This ensures your income statement reflects only your true revenue, not the tax you’re passing through.

What about tips, donations, and “friends and family” payments?

Not every inflow is revenue from sales. You should categorize unusual inflows based on their nature:

• Tips can be recorded as income, often in a separate “Tips Income” account so you can track it.

• Donations may be income, but how you treat them can depend on the context (especially if you’re a charity or collecting on behalf of someone else). If you’re not sure, track donations in a separate account and seek guidance specific to your situation.

• Owner contributions (money you put into the business) are not revenue; they are equity injections.

• Loans are not revenue; they are liabilities.

The reason to be careful is that payment processors make all inflows look similar. Your bookkeeping needs to tell the real story.

Make reconciliation non-negotiable: Stripe, PayPal, and your bank must all match

Recording income correctly isn’t just about posting entries—it’s about proving that your books match your real-world balances and activity. Reconciliation is the process that catches missing transactions, duplicates, and miscategorized items.

Reconcile your bank account

At least monthly (weekly if you have higher volume), reconcile your business bank account so the book balance matches the bank statement. Ensure Stripe payouts and PayPal withdrawals are recorded as transfers, and bank transfer receipts are matched to invoices or sales records.

Reconcile Stripe

Stripe provides reports showing charges, fees, refunds, disputes, and payouts. Reconcile your Stripe clearing/balance account so it matches Stripe’s balance, and confirm that every payout to the bank has a corresponding transfer entry.

Reconcile PayPal

PayPal also has activity reports that include fees and currency conversion. Reconcile the PayPal balance account to PayPal’s ending balance. If you pay expenses from PayPal, ensure they are recorded so the balance doesn’t drift.

What reconciliation tells you immediately

• If your clearing/balance account doesn’t reconcile, you likely missed a fee, a refund, a dispute, or a timing item.

• If your bank reconciliation is off, you may have duplicated a deposit, missed a withdrawal, or misdated a transfer.

• If revenue looks too low, you may be recording net deposits instead of gross sales.

• If revenue looks too high, you may be counting payouts as income in addition to recording sales.

Practical categorization tips to keep reports useful

Even if you are not building a complex chart of accounts, a little structure goes a long way. Here are categories that are often helpful when you accept payments via processors and bank transfer:

• Sales Income (or split by product/service line)

• Sales Returns/Refunds (contra-revenue) or Refund Expense

• Payment Processing Fees (Stripe + PayPal fees)

• Dispute/Chargeback Fees (separate from normal fees)

• Foreign Exchange Gain/Loss (if you deal with multiple currencies)

• Stripe Balance/Clearing (asset)

• PayPal Balance/Clearing (asset)

This structure helps you answer basic business questions: How much did you sell? How much did refunds cost? How much are fees eating into margin? Are disputes increasing? How much are currency conversions costing?

Common real-world workflow examples

Sometimes it’s easier to understand by imagining your month-end workflow. Here are three patterns people use successfully.

Workflow A: Record each sale automatically, then reconcile payouts

If you use an online store, invoicing tool, or appointment system, you may already have each sale recorded. In that case:

• Ensure sales are recorded gross and include tax breakdowns if needed.

• Import Stripe and PayPal activity primarily to capture fees, refunds, and payouts.

• Map payouts as transfers, not income.

This workflow reduces manual entry for revenue but requires good mapping so you don’t duplicate income.

Workflow B: Summarize processor activity daily/weekly

If you sell a lot of small transactions, recording each one manually is painful. Instead:

• Use Stripe reports to post a daily or weekly summary journal entry: gross sales, fees, refunds, and net change to clearing.

• Do the same for PayPal.

• Record payouts/withdrawals to bank as transfers.

This keeps the books light while still accurate enough for reporting and reconciliation.

Workflow C: Record only invoices/sales, then use clearing accounts to settle

This is common in service businesses:

• Create invoices and record revenue when invoiced or when work is completed (accrual) or when paid (cash).

• When a payment comes in via Stripe/PayPal/bank, apply it to the invoice through the appropriate account.

• Fees and payouts are handled through the clearing accounts.

This workflow is powerful because every bank or processor receipt has a “job”: it closes an invoice and reduces what customers owe.

How to handle timing differences and “money in transit”

Stripe and PayPal introduce delays: a customer pays today, but you might not see the money in your bank for several days. This is normal and doesn’t mean your records are wrong. It means money is in transit.

Using a balance or clearing account naturally handles timing differences. Your books will show the money sitting in Stripe/PayPal until it’s paid out. If you skip those accounts and only record bank deposits, you lose visibility and can misinterpret your cash position.

Timing also affects month-end reporting. If you’re on cash basis and you record income only when deposits hit your bank, sales made at the end of the month might appear as next month’s income. That may be acceptable for your purposes, but you should be aware of it so you aren’t surprised when you compare sales reports to your bookkeeping.

Quality control checklist: what to verify every month

If you want a simple routine that keeps you accurate, run this checklist monthly:

• 1) Bank reconciliation is complete. Your bank account in the books matches the statement ending balance.

• 2) Stripe clearing/balance reconciles. Ending Stripe balance in books matches Stripe’s ending balance (or your report cut-off).

• 3) PayPal clearing/balance reconciles. Ending PayPal balance in books matches PayPal’s ending balance.

• 4) Fees are separated. Processing fees are posted to a fees expense account, not netted inside income.

• 5) Refunds and chargebacks are categorized. Refunds hit a refunds/returns account, disputes hit a dispute category, and any recovered amounts are properly reversed.

• 6) Transfers are not income. Stripe payouts and PayPal withdrawals to bank are recorded as transfers, not sales.

• 7) Sales tax/VAT liability is reasonable. Tax collected is sitting in a payable account and aligns with your sales activity.

This checklist catches most errors before they snowball.

Frequently asked situations and how to treat them

“Stripe deposits don’t match my sales for the day. Is something wrong?”

Not necessarily. Stripe often batches payouts, delays funds, and nets refunds and fees. The deposit amount is a settlement figure, not a sales figure. Compare your Stripe payout report (net) to the deposit, and compare your Stripe charge report (gross) to your sales. A clearing account makes this obvious.

“PayPal shows a balance, but my books say zero.”

This usually happens when PayPal is treated as an off-books wallet. If you receive payments into PayPal but only record withdrawals to the bank, your bookkeeping will never show what’s left sitting in PayPal. Create a PayPal balance/clearing account and post receipts, expenses paid from PayPal, and withdrawals so the balance matches reality.

“I receive both invoices (bank transfer) and online checkout (Stripe). How do I avoid a mess?”

Use consistent naming and consistent accounts. For example, always deposit bank transfers directly to the bank income or receivable settlement, and always route online checkout through Stripe clearing. If you have invoices, apply every payment—Stripe, PayPal, or bank—to the invoice so your receivables stay accurate.

“Should I record tips and gratuities as sales income?”

Record tips as income, but often in a separate category. This keeps your core sales separate from gratuities, which can be helpful for understanding performance and for any payroll-related tip handling if you have staff.

“What if Stripe or PayPal holds a reserve?”

A reserve is still your money, but it’s restricted. Your processor may hold it for risk management. In bookkeeping, it’s usually still part of what’s owed to you, and it will appear as timing differences in the clearing account. If the reserve is shown separately in reports, you can track it in a separate asset sub-account for clarity.

Putting it all together: a simple blueprint for recording income across all three methods

If you want a straightforward blueprint that works for most small businesses, here’s a solid starting point:

• Create three asset accounts: Business Bank Account, Stripe Clearing (or Stripe Balance), and PayPal Clearing (or PayPal Balance).

• Create expense accounts: Payment Processing Fees and Dispute Fees (optional but helpful).

• Create a contra-revenue (or expense) account: Refunds/Returns.

• Record all customer payments as gross sales into the relevant asset account (bank for bank transfer; Stripe/PayPal for processor payments).

• Record processor fees as expenses against the relevant processor account.

• Record payouts/withdrawals as transfers from Stripe/PayPal to bank.

• Reconcile bank, Stripe, and PayPal monthly so the balances match statements/reports.

This blueprint keeps income accurate, prevents double-counting, and makes it easy to answer key questions about profitability and cash flow.

Final thoughts: accuracy now saves hours later

Recording income when you’re paid through Stripe, PayPal, and bank transfer isn’t difficult once you separate the concepts of sales, fees, and transfers. Sales are what you earned. Fees are costs of collecting that money. Transfers are simply movements of cash between accounts you control. When you set up your accounts with that structure, your reports become more meaningful, your reconciliations become faster, and your financial picture becomes clearer.

If you implement one improvement immediately, make it this: stop recording only the net deposit as income. Instead, record gross income and fees separately, and treat payouts as transfers. That single change will make your bookkeeping more accurate and far easier to maintain as your volume grows.