I use an outside payroll service. I need to enter the info into QB, but am having a problem with the tips/gratuity for employees. I am out of balance. My questions:
1) What new accounts (type included) do I need to set up in the chart of accounts? I have: Tips Clearing (Bank) and Employee Tips IN (Other current liability). Am I missing an account?
2) In detail, what are the exact steps to enter the info. I've followed other recommended answers, but to no avail.
To start, when I make a deposit, I credit Sales acct. & Employee Tips IN (liability acct.). Is that correct?
Solved! Go to Solution.
I'm having a similar issue. My p & L says I have tons of $$$ which I do not and I'm convinced its because I'm not properly tracking the tips. AAAGGHHH.
Example $200 in sales ($100 cash/$100 credit card)
recorded as $200 deposited into cash drawer. credit cards clear the next day ($100 sales $50 tips)
$150 goes into bank account.
$50 left in cash drawer but my staff took those $50 already. How do I show the debit?
I’m very sorry, but if tips a company receives meets the 4 criteria under IRS rules, it is NOT to be recorded as income to the company. If it is a “gratuity” that a company sets the amount and requires it to be paid, the IRS does not consider it a tip. Unless you’re doing a JE to IMMEDIATELY transfer the tip dollars received to a liability account (I.e. Tips Payable), tips should not be recorded as income to the company and show up on the P & L.
When money is received and it meets the criteria that the IRS has set to be considered tips, it should NOT be included with or recorded as income to a company. Unless the company immediately reclasses those dollars to a Liability account (i.e, Tips Payable”, counting it as income is incorrect.
"Example $200 in sales ($100 cash/$100 credit card)"
Do not confuse Payment Type with Sales.
"recorded as $200 deposited into cash drawer."
Sales credit is All Sales, or are Tips in that value? Because you expect that Tips are in the Payments. That is where you got confused.
"credit cards clear the next day ($100 sales $50 tips)"
Then it is Not $200 of Sales. And this only totals $150; what happened to that difference? Did you mean:
$150 Sales income <== these Three Lines offset each other
$50 Tips Liability <== these Three Lines offset each other
$50 Taken from Cash Till by Servers <== these two lines Offset each other
which is matched to the entry for $50 Borrowed by the Servers as Employee Loan (other current asset) <== these two lines Offset each other
And then $200 as paid by checks, cash and CC charges as Settlement <== these Three Lines offset each other
Plus, you usually need an Over/Short entry as linked to income
And you might need a Sales Tax Liability item
"'$50 left in cash drawer but my staff took those $50 already. How do I show the debit?"
That is Employee Loan. It is Other Current Asset. Like this:
They Borrowed $50.
Then, tips through payroll is Gross $50, clearing the Liability account. It gets Taxed. In your business where you allowed them to Take Money already, then you also need the Loan Repayment item, as Employee Loan repayment Deduction, like a wage garnishment, to clear that Other Current Asset for $50, to avoid it adding to take home. They Already Got it.
yes, this is where people often get it wrong: "Unless you’re doing a JE to IMMEDIATELY transfer the tip dollars received to a liability account (I.e. Tips Payable), tips should not be recorded as income to the company and show up on the P & L."
You won't JE tips. You also don't mix Tips into Sales. A lot of people never considered that the Money is not Sales. The Money is the Banking. Not the sales.
Here are Two Bookmarks for Summary Sales, that helps. There is a blog for Desktop, and a Video for QB Online:
I don't understand something though. I don't have employees at the moment. So I must be entering my tips the wrong way in qbo because it automatically takes it out of my account as a payment. What is with that? How can I have it be taxed as income if it is taken out. (which it is not)
Hello there, @jennyrice262.
Let's first enable the Tips feature in your QuickBooks account. Once turn on, you can add the tips field to sales receipts. From here, you'll be able to record it as an income.
Here's how to turn on Tip field on sales receipt:
Once completed, you can now create a sales receipt to record your customer payments and tips.
You can check this article for more detailed tips: Add tips to sales receipts.
Also, you can browse these articles to learn more insights about managing your income transactions:
Always feel free to leave a post below if you have other questions about tracking your income in QuickBooks. I'm just a few posts away.
I have a sort of similar situation. POS system tracks tips and pays employees their tips in payroll. Payroll is brought over to QBO as journal entry with tips showing as paid out. I still have a tips payable account to clear. What journal entry do I need to add to zero out that payable account?
Hello! I picked up on this not to reply but because I am having the same issues.
I am looking for a solution.
I do the Bookkeeping for a restaurant.
THIS IS WHAT THE POS SHOWS.
The credit card sales e.g. 1 day (A daily Sales Summary)
These amounts were deposited into our bank account.
The above amounts are including the tax (8.8%) & the tips $ 544.74 (already taken by the Employee same day and only reported to us).
The cash sales $425.91 - No cash (From this amount they paid the tips of $425.91 and Manager wrote a check to cash it for the difference of $118.83 to completely pay the tips to employees.
POS Shows cash $425.91 less tips (544.74) = negative day (118.83)
This is how I enter it in Quickbooks. Daily Sales summary. 1 for each credit card.
e.g. Amex /. ..food (acct. 4100 cogs- food sales) .............53.43 less 8.00 tips divided by the tax 1.088 = 41.76 (food sales) + tax 3.67 = 45.43). This way what goes into quickbooks for that deposit - As the transaction Journal in quickbooks shows.
1099 undeposited funds $53.43
4100 the food sales $41.76
2400 the tips acct $8.00
2550 taxes $3.67
Each cc same way. 1 daily sales summary for each. (Amex/Disc/Mcard).
Where I have the issue is how to do the sales receipt for cash sales when I cannot do a negative sales receipt.
I need to be able to include the cash sales, the tip paid, the taxes.
I did it this way. The sales receipt.
425.91 divided by the tax 1.088 = 391.46
-544.74 tips paid with the cash
bal. sales receipt (118.83) (we cannot enter a negative sales receipt) I created an item name "negative day- tip fund"
The manager writes a check for 118.83 we have the sales receipt showing the cash for tips acct 118.83 and the check the manager writes -118.83 0.00 owed to employee for tips.
The way quickbooks shows it as Transaction Journal
1099 Undeposited fund $0.00
4100 food sales $391.46
2400 tips -544.74 (note: in each credit card we deduct the tips and they are in the tips account on one side and then when we show it in the -544.74 as paid this zero outs the tips account)
1020 cash for tips 118.83
2550 taxes $34.45
I would like to get your opinion on this. I do not think I should be paying tax on the tips. I also do not think I should have 118.83 as food sales when is negative and is tips.
Hopefully you have time to give me some advise.
(Note: what I am seeing with all the POS for Restaurants is that they are confusing sales with deposits. How they are "expressing it" in the reports sales summaries is that they are confusing bookkeepers. The creators of this programs and merchants are tryng to show everything as a sale because they collect a percentage on the entire amount).
I am hoping you can help me. My employee receives credit card tips. When I do my credit card deposits should I put the tips in the tip other asset liability account and also when I pay her do I take it out of this account. If so how should I track the tips since it is not income for our company just a by pass. But it will show up at the end of the year as income for us.
I'm happy to provide some information about handling tips in QuickBooks Desktop Payroll, @susanhd.
There are two ways to record it, depending on how your employees received their tips. If it's a taxable tip amount, use an Expense account. However, if the tip amount was retained by the employee, use a Liability account.
It's always best to consult with your accountant before recording tips in QuickBooks. They know what's best for you and your business. If you don't have an accountant, you can find one in our Resource Center.
I've added this article for more information on how to add Tips in your employee's paycheck: Report tips in and out on employee paychecks in QuickBooks Desktop Payroll.
You may consider checking out this article about using the reports feature to track specific aspects of your business in QuickBooks Desktop: Understand reports. This contains sub-articles such as customizing and combining reports from multiple company data files.
I'll be here if you have other questions. Let me know in the comment section and I'd be happy to back you up. Have a wonderful day ahead.
HI I am still having an issue with tips paid out in payroll by 3rd party app. The app makes a JE with tips to expense account. The invoice/sales receipt have tips in to a liability account. The issue is, the liability account continues to grow and there is no deduction against the growing balance? How do I account for this? specifically, which steps to resolve this issue?
Thanks for joining this thread, Razzz.
It looks like you use a different payroll provider. I understand that we need to post the transactions properly to avoid issues.
However, it's best to reach out to your payroll provider or to the third party importer. It's possible that this is due to incorrect mapping of the data. They can assist you further on how to correct it.
Keep on posting here if you have more questions. Stay safe!
Question on this...are the tips not included with the gross wages? Shouldn't wages reflect this amount? If they go to a liability account how do they get caught for the yearend W-2's. You say debit Gross wages $500, DB Tips Liability $20 and credit everything else which I assume is the employees payroll taxes.
I am having the same problem. Cash tips never get deposited, the employees takes at end of shift. The cash tips are reported to PR company. They are included in gross wages (separate line) taxed and then of course as a deduction to net pay. My journal entry is always off by the cash tips, leaving me with a credit to distribute.
Let's get this sorted out, @lightwalkersvcs.
When processing cash tips to the employees who'll take it at the end of their shift, you can create a clearing account and use it to deposit the amount. Then, you'll have to add the clearing account under the credit side when creating the journal entry. This way, it'll offset the cash tips.
Here's how to set up a clearing account:
Once done, you can use this account to deposit the employees' cash tips. Then, create a journal entry for your payroll and add the clearing account to offset the cash tips.
I'm also adding this article to learn more about reporting tips in and out on employee paychecks.
Please let me know if you need clarification about this, or there's anything else I can do for you. I'll be standing by for your response. Have a great day.