I had a customer pay an invoice and include a tip. How do I record this as it does not go to individual employees?

Hello there, iconstruction_ll,

Let's add a line item so we can record tips in your invoices

By doing so, you'll be able to keep track of your customer's tips. Before recording it directly to your invoice, let's perform the step-by-step process provided below.

First, you need to choose an account to use for your tips (if you haven't added one yet). Here's how:

1. Go to the Gear icon, then choose Account and Settings.
2. Select Advanced.
3. Go to the Chart of Accounts section. Then select the pencil icon.
4. From the drop-down, choose your desired account for tips.
5. Select Save.

Next is to set up a Product/Service called Tip and use it in adding a line item in your invoice. Please follow the steps below:

1. Go to the Gear con, and then select Product and Services.
2. Select the New button.
3. Choose Service.
4. Input all necessary information of the service.
5. Once done, click the Save and close button.

After completing the process above, you can now add tips as a line item by editing an existing invoice, creating a new invoice for just this tip, or creating an invoice including the tip amount in it.

I have customers who pay their invoice online and will include a tips. The tip is considered an overpayment of the invoice.  If I record the tip as an item on the invoice, won't it affect my sales revenue and be included in my sales tax report?

Second, when creating a new service item for tips, do I select the "income account" to a tip current liability account and uncheck the box "is taxable"? 

Thanks in advance.

Hello leeleeg,

QuickBooks Online has feature that allows you to add tips, however it is only available for sales receipts.

For invoices, there are two ways to add the tips. You can include it as an item on the invoice, or add it when you deposit the invoice payment.

The tip item won't affect your sales revenue as long as you set up the associated account correctly.

The tip account is created automatically once you turn on the Tips feature. Though, here's how you can create it manually:

1. Click the Gear icon in the upper-right corner and select Chart of Account.
2. Click the New button and select Other Current Liabilities in the Account Type field.
3. Select Other Current Liabilities in the Detail Type field.
4. Enter the account name and click Save and Close.

Then, let's associate the account to the tip item:

1. Click the Gear icon in the upper-right corner and select Products and Services.
2. Click the New button and select Service or Non-inventory as the item type.
3. Enter the tip details and go to the Sales information section.
4. Enter Undistributed Tips in the Income account field.
5. Remove the check mark in the Is taxable box.
6. Click the Save and close button.

 You can now use this when you create the invoices. And you'll notice that the system will only calculate the sales tax for the taxable items.

Let me know if you you need more assistance with this.

Just curious, since you consider it an overpayment of the invoice, do you discount the tip amount from their next bill (if they have one)?

I'm working on Quickbooks desktop pro 2023. I also use square for my billing and then transfer the amounts into quickbooks.   I dont see the "gear" icon.  Can you please advise me how to set up an account for tips that customers pay online when they are using their CC to pay for invoices I have sent them through the square app?

Thanks

Hi there, sharonakd.

You'll need to connect your Square account to QuickBooks Desktop so the transactions are shared from Square to QuickBooks smoothly. However, there isn't a way to directly connect the two, so you will need a mediator app to link them both.

Here's how to find a mediator app:

1. Go to https://desktop.apps.com/
2. Search for "Square". the page will give you the list of mediator apps. Just click each of them to get their contact information.

If you have any other concerns, please hesitate to go back to this thread. Take care and have a good one!