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Intuit

How to record a tip and add tips on the employee paycheck

Quickbooks Online has a dedicated field for tip tracking, and also a dedicated account for tracking tips. This eliminates the need to set up an account manually.

Turn on the tips tracking feature

First, you will need to turn on the Tips tracking feature. Turning this on adds a “Tips” field on sales receipts.

  1. Select the Gear icon on the Toolbar.

  2. From the left menu select Sales.

  3. Under Your Company, select Account and Settings (or Company Settings).

  4. From the left menu select Sales.

  5. Select the pencil (edit) icon on the Sales form content section.
  6. Check the Tips (Gratuity) box, then select Save.
  7. Select Done.

Next, you will need to add tips on your sales receipts.

  1. Select the Plus icon (+) on the Toolbar.

  2. Under Customers, select Sales Receipt.

  3. Enter the Customer name and other sales details.
  4. Add the tip amount in the Amount column.

Add tips on the employee paycheck or pay them by creating a check

  1. Select the Plus icon (+) on the Toolbar.

  2. Under Vendors, select Check.

  3. From the Choose a payee drop-down, select the employee to whom you are paying the tip distribution.
  4. From the Bank Account drop-down, choose the account from where you are making the liability payment.
  5. Under Account, select Undistributed Tips, then enter the tip amount in the Tip column.
  6. Fill in the rest of the check, then select Save and Close.

If your business pays out tips before depositing the final amount to their bank accounts

Some businesses pay out tips before depositing the final total payment amount to their bank accounts. In this case, you need to use a journal entry to remove the tips from the deposit and pay out the undistributed tips.

Record the payment.

  1. Select the Plus icon (+) on the Toolbar, then select Receive Payment.

  2. Select the customer who paid you in the Choose a customer
  3. Select Undeposited Funds as the Deposit to account.
  4. Select Save and close.

Create a journal entry.

  1. Select the Plus icon (+) on the Toolbar, then select Journal Entry under Other.

  2. For the first line, select Undistributed tips, then put the amount you paid out to employees in the Debits
  3. For the second line, select Undeposited Funds, then put the same amount in the Credits
  4. Select Save and close.

Record the deposit.

  1. Select the Plus icon (+) on the Toolbar.

  2. Under Other select Bank Deposit

  3. Select the original payment or sales receipt and the journal entry; this will reduce the total by the amount of the tips you paid out.
  4. Select Save and close.

You also need to record a shortage or overage on the deposit amount related to the tips:

  1. In the journal entry created, modify the Undeposited Funds line by the amount of the shortage or overage.
  2. Add a third line and select an overage or shortage account, then put the amount of the overage or shortage in the Debits.

Now you know how to manage tips and gratuities.