Originally posted by TheLimey
They can pay via PayPal or 2CO, but the problem arises when we create invoices within our accounting software.
We can't really lump it all together each month as "income", as we need to be able to offset the payment gateway costs as expenses.
You really need to talk to an accountant (so do I, but I won't). What I did this year was...
Basically maintain N sets of books (one for each currency), using your favourite accounting package. When you bring currency across to your home currency you can record that as income against that currency, just record that it's "Currency Transfer from PayPal.com, Ref# xyz, FX Rate 0.123 " and then record that as an expense in the outgoing set of books (eg the USD books). Record the transfer as an expense in the outgoing books.
At financial year end you probably want to do an adjustment to "bring the funds across" to the home currency (so you can work out your year end income for tax). Last year I just got the current exchange rate (from the Inland Revenue Dept) and recorded a transfer (but didn't actually do it) of all the remaining funds into the home currency, then on the 1st of the next financial year recorded a reversed transfer (ie expense in the home currency books, income in the FX books). I figure it's OK to do that because later in the year when I really do transfer it then it will be recorded as income again, the goal is that I pay the tax on the funds I made within a year (whatever currency), in that year.
If you pay bills in other currencies too (PayPal), just leave it in the FX books, it won't really matter because it'll just be "silently" deducted due to the fact that you won't transfer it to the home currency (where it's recorded as income "for real"). And of course if you pay more in the foreign currency than you make, well it doesn't matter because you had to transfer the money in from the home account somehow where it would have been an expense.
It's not quite right (because of the way I use income & expense to record transfers between currencies, it's not *really* an income from PayPal), and it doesn't give you an easy way to get an accurate "overall" picture at any given time, but as far as I can tell it gives the correct net effect and allows you to calculate the correct tax.
It would be easier if your accouting package supported multiple currencies, unfortunatly it's hard to find one. Gnucash does, but Gnucash still isn't really ready for business use (no where near as nice to use as Quickbooks), I used Gnucash last financial year but I still had to do most of the above by manually entering transactions. Quickbooks does, but only *some* versions (Intuit seems to think it should sell features only into some markets for unknown reasons), the US doesn't, the Canadian does I believe, who knows about the UK - I've never used QB's international currency system though so I don't know if it's useful, I would expect it to make the job somewhat easier anyway.
So, hope that helps.
IANAA (I am not an accountant), but that's the way I did things last year and it produced ( small :-( ) numbers that for all intents and purposes were accurate and enabled me to submit a tax return for the correct income & expense. As long as everything is recorded, it all comes out in the wash y'know.