Hi shau
N-T is not Reportable so it doesn’t get reported on your BAS.
FRE is gst free, it does get reported on your BAS.
When a customer pays you, the transaction to receive that money deposits it into your PayPal account and allocates it to your income account with the tax code gst. So the income account side of that transaction reports it on your BAS. If your PayPal account had the code FRE, it would be reported twice, inflating your income.
All bank accounts and credit cards are N-T because you are reporting the income or expense when you allocate it to an income, COGS or expense account.
And just to add to your first question, you can only pay to, pay from, transfer between and reconcile accounts with the type bank or credit card.
Cheers
Tracey