Accounting for Credit Card Tips

@gincollingo 

I don't see where you are crediting (reducing) the bank account for the tips paid out to the employees.  When the employees receive the tips, your J/E should debit the Unallocated Tips liability account and credit the bank account, not Other Income. 

Hi Rainflurry.  Thanks for responding.

The issue I'm having is that credit card tips aren't paid directly from the bank account, they're paid thru QB payroll.  I set the client's payroll up to have additional pay types for Credit Card Tips and Cash Tips.  The owner tells me how to allocate tips and I input the amounts for each employee for both credit card and cash tips when I run payroll.

QB runs these amounts thru payroll so that each employee gets taxed on the tips.  Note that credit card tips increase employees' gross income while cash tips do not.  Bottom line is that tips are paid thru QB payroll so the tip payments come out of the bank account thru payroll.

My problem is that there isn't a way to connect the Unallocated Tip liability account with payroll.  So I need to create a journal entry to reduce (debit) the liability but I need an account for the offsetting credit.

Thoughts? 

@gincollingo 

Are you using the default account for tips called "Undistributed Tips"?  You mentioned you use an account called "Unallocated Tips".  You need to use the "Undistributed Tips" default account to record the liability from each day's sales.  That account is created automatically when you enable tips in Account and settings.  Then, when you run payroll and allocate the tips, QBO will reduce the Undistributed Tips liability account and subject the tips to withholding.  You should remove the entries to Other Income.  As I'm sure you're aware, tips are not income to the coffee shop.