Are tips left on a cc accounted for as Revenue or a Liability?

Leon D · ‎May 13, 2022

I'm trying to understand how to classify tips that come into my bank as part of a larger transaction. Are they revenue or a liability?

I make sales in a restaurant using Square. Customers often add tips to their bill within Square.

Every day Square sends my prior day's Revenues less their fees to my bank account. These transfers include various different types of sales, taxes and tips all lumped together.

I then go into the bookkeeping section of QuickBooks, look at the bank transactions and start classifying them.

For the Income transactions from Square, I split each one using a report that Square lets me run. I'm able to assign parts of each payment to the correct GL code. Thus, I have a record in QB for different types of food sold, different Sales Taxes and then there are Tips.

I'm trying to figure out if I need to create a new GL code for tips, and if so, is it a Revenue code or a Liability on the B/S? If it's a Liability, do I then need to split each payment that I make to my employees into a Payroll Expense piece and a Liability reduction piece for the tips received in that payment?

ChristineJoieR · ‎May 13, 2022

Good day, @Leon D.

I'm here to help you out how to record tips in QuickBooks Online

If you run a service, consumer may leave tips and gratuities for good service. You must first create a Gratuity/Tips liability account in QuickBooks Online before you can record tips and gratuities. To enter the liability account, perform these steps:

Select Chart of Accounts from the Gear symbol in QuickBooks.
At the top right, select New.
In the drop-down menu, select the Other Current Liabilities.
Under Detail Type, choose Other Current Liabilities and in the Name field, type Gratuity/Tips.
To save the information, click Save.

Follow these procedures to enter gratuities received by employees into QuickBooks. Follow steps below:

Select Check from the + sign at the top.
To pay the tips, select the back account.
Choose which staff will receive tip.
In the Account area, enter the amount and select Gratuity/Tips.
Save the file.

To complete the transaction, you must also enable the Tip-tracking option.

Here's how:

The Gear icon.
Select Account and Settings under Your Company.
Select the Sales from the left menu.
On the Sales form content section, click the pencil icon.
Check the box for Tips (Gratuity).
Who is getting these hints? When the window appears, click the My Team button.
When the window Update your sales receipt template? appears, click the Update button.
Choose Save, then Finish.

You can also ask your accountant which account to use. They are the ones that can assist you with keeping your books accurate.

In addition, for more information on how to record tip payments and deposits, click here: Share tips with your team.

Stay in touch if you have any other concerns or additional questions about the account. I’d be glad to help and answer them for you. Enjoy the rest of the day.

View solution in original post

ChristineJoieR · ‎May 13, 2022

Good day, @Leon D.

I'm here to help you out how to record tips in QuickBooks Online

If you run a service, consumer may leave tips and gratuities for good service. You must first create a Gratuity/Tips liability account in QuickBooks Online before you can record tips and gratuities. To enter the liability account, perform these steps:

Select Chart of Accounts from the Gear symbol in QuickBooks.
At the top right, select New.
In the drop-down menu, select the Other Current Liabilities.
Under Detail Type, choose Other Current Liabilities and in the Name field, type Gratuity/Tips.
To save the information, click Save.

Follow these procedures to enter gratuities received by employees into QuickBooks. Follow steps below:

Select Check from the + sign at the top.
To pay the tips, select the back account.
Choose which staff will receive tip.
In the Account area, enter the amount and select Gratuity/Tips.
Save the file.

To complete the transaction, you must also enable the Tip-tracking option.

Here's how:

The Gear icon.
Select Account and Settings under Your Company.
Select the Sales from the left menu.
On the Sales form content section, click the pencil icon.
Check the box for Tips (Gratuity).
Who is getting these hints? When the window appears, click the My Team button.
When the window Update your sales receipt template? appears, click the Update button.
Choose Save, then Finish.

You can also ask your accountant which account to use. They are the ones that can assist you with keeping your books accurate.

In addition, for more information on how to record tip payments and deposits, click here: Share tips with your team.

Stay in touch if you have any other concerns or additional questions about the account. I’d be glad to help and answer them for you. Enjoy the rest of the day.

Leon D · ‎May 14, 2022

Thank you very much for that explanation!

RenjolynC · ‎May 14, 2022

Thanks for keeping us posted, Leon D.

We're glad to know that you got the explanation for your concern. If there's anything else we can assist you with, please feel free to visit the Community at any time. We're always available to help you out. Have a wonderful day!

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Are tips left on a cc accounted for as Revenue or a Liability?