The best method of maintaining your records is the one that works for you and the one you will keep up with. Having said that, the state of records presented to me by clients ranges from shoe boxes full of receipts (don’t laugh, it happens) to profit and loss statement printed from an accounting program. Guess which one gets a larger bill?
Keeping you transactions in excel is ok. Although your tax preparer is probably going to want to see your bank statements and will then start asking you questions from there.
Quicken is not a bad little program. It will help keep up with you revenues and expenses just fine and allow you to do some things on the personal side such as track investments. However, it is limited as it is not a true double sided accounting system.
In my opinion, if you are going to run a business of any type, and you are serious about it, then you need to get a small business accounting program. There are several out inexpensive programs out there that are not difficult to learn and use. I prefer Quickbooks. It is very easy to get started with. Being a Quickbooks Pro Advisor, I can get you a discount on the program if you pm me. If you have problems or questions you can pm me and I will help you out.
You also need to open a separate bank account for your business and never commingle your personal and business records. If you need money to pay personal bills, write yourself a check or transfer funds to your personal bank account.
Keeping hard copies of you paypal transactions is a good idea. You will want to keep copies of your bank statements as well. Presenting your tax preparer with neat, well kept records should get you a better rate for tax return preparation and put you in a better situation should your return be selected by the IRS for examination.