Our business recently started to accept credit card tips for our employees and pay them out with every second pay stub once a month.
After following suggestions in numerous articles, we record them in Quickbooks Online (when assigning daily banking incomings) as a newly created service, indicating under "Income account" also newly created "Tips Payable" under Current Liabilities (since the Canadian version of Quickbooks Online does not have an option to activate "Tips" in sales receipts under General Account Settings, it seems just in US).
We include Tips in paychecks as "Controlled Tips", one of the wage items available under Employee payment settings.
Here the question comes: Many YouTubers and accounting professionals in related articles mention "mapping" accounts so Tips Payable (or Undistributed Tips) gets cleared out. How can we connect it to the "Controlled Tips" item so it does not double count (clears out automatically) or what ledger record should we perform, assuming, once a month?
Please provide or correct me with a clear answer. I have read all available topics here on related questions, none of it was really helpful.
Thank you for taking your time!
Hi there halonski,
Doing research into how to record something like tips in QuickBooks Online and its Payroll add-on services is a great place to start, and I can clearly see that you've done your homework here. I know that different resources can offer different pieces of advice, and I'm here to help sort through them so you can see how the program handles these situations and how to move forward.
To start, it sounds like you've got both the Controlled Tips payroll item and a service item set up in your Products and Services area to account for the tips on your invoices. In this case, these two features operate separately, even with the option to map payroll accounts.
That's because the Controlled Tips payroll account wouldn't be mapped to clear out the liability account you have set up, but rather it would be mapping the related expense account to track the funds. Here's how you'd do that if you'd like to take a look at the options.
Map accounts in QuickBooks Online Payroll (formerly Standard Payroll)
Map accounts in Advanced Payroll
Since the payroll expenses and the setup you've got to record the tips as a liability don't meet up, I want to make sure that you're getting the help with this you need to make sure that you're not double recording any amounts and can figure out a way to clear that account if you're continuing with this setup.
In light of that, I recommend connecting with an accountant. The accountant will be able to offer you informed advice on how to handle this situation and let you know the best steps to take for your needs.
QuickBooks Online can help you with connecting to an accountant. Use the My Accountant tab to easily invite your accountant as a user to work with you in your books or click the tab's Find a pro to help button to research accountants in your area who know QuickBooks if you don't already have someone you're working with. An accountant is a great asset, and that's why QuickBooks developers have included this feature.
I hope that helps you along with figuring this out. Don't hesitate to stop by again if you've more questions. :)
Thank you kindly for getting back!
Just to resume your advice, if understood correctly, you suggest using an expense account instead of the Current Liability type account because it is not possible to map directly with Wage Expense: Controlled Tips. Yes, we found these mapping options under Payroll Settings, thank you very much for pointing out.
This is our first month recording Tips (have not paid out anything yet) and we can re-route our transactions.
Would be the best approach using an Expanse account?
I'd be happy to clarify! So in this case, I'm not recommending that you use an expense account, but rather I'm just highlighting that that's the option when it comes to mapping payroll accounts.
It sounds to me like you followed the steps in the Share tips with your team article, which is the one that mentions setting up a liability account for the tip amounts to on sales forms, which is later cleared out with a cheque payment to the employee. So in this case, it's a separate process from the payroll feature entirely.
I've just run a test, and it looks like using the expense account instead could work similarly to setting up the liabilities account. This is where the accountant comes in because they'll be able to determine the best setup for you. While this does seem to clear the account as you're hoping, an accountant will be able to let you know if this is the best course of action not only for handling the accounts, but also for making sure you're meeting filing requirements for your books.
I hope that helps clear it up!
Thank you for testing and providing additional information. This community has been a great resource so far, but the question with Tips is still vaguely described (at least in Canada). I understand that it might be a question that needs obtaining details of a particular company to apply a solution correctly. But it must be general guidance that describes 1-3 standards cases that would fit most of the businesses, just like the rest of the questions answered here. We consider ourselves as a standard business. Our accountant is away from the country and we were looking for advice sooner.
It's my pleasure, halonski. I hear what you're saying about standard methods versus other ways that businesses might need to calculate and enter tips for their employees and having resources for those instances. It's a good callout, and I recommend sharing this feedback via the in-product option as well. By doing so, your comments will be forwarded directly to the team that handles these things and you can let them know how you feel about the existing options and share any ideas you have with use about how we can enhance the options or resources available You can even share that you'd be interested in a built-in Tips feature like the US version of the software. This article takes you through the steps to easily submit your feedback: How do I submit feedback?
I hope you have a great week!