Tips Income and Expense

your accountant is wrong.  Tips paid to servers or staff are a company liability, you owe those tips.

create a liability account and CR the tips to that account, use that account as the expense when you pay out the tips.

I'm in a similar situation. 

My payroll system (Gusto) debits my bank account each pay period for "Net Payroll" and "Net Taxes". It does not separate out paycheck tips (i.e. credit card tips that I allocate to each employee, each payperiod), although it is separated out for tax purposes. 

If I setup a liability account for tips, how would I account for tips that are paid out? Would I need to make a journal entry each pay period since it isn't automatically separated for categorization? Or should I "split a transaction" and then recategorize the tip portion to the liability account? 

Good day, molly17!

Thanks for joining us here. Let me share some details about categorizing transactions.

Both journal entry and splitting the transaction will work. However, it'd be better to create a journal entry since you're using a different payroll provider. Please check the detailed steps here:

• Manually enter payroll paychecks in QuickBooks Online

• Share tips with your team

Also, it'd be best to consult with your accountant. They can advise you to determine the correct posting accounts.

For more references about banking concerns, you may visit this page: QBO Banking.

Need more help? Leave a comment again and we'll respond as soon as we can.

Hello,

You may be able to assist me. 
I work for a metal contractor and he just received a tip. How would I categorize that? He is a single member, and this has not happened before. 
Would I create another income item as tip and journal entry it in? Add it to the invoice?

thank you!!

Thanks for joining us here in the thread, @OliviaA5. It seems that categorizing a tip is essential to you right now. No worries, I'm here to help you on how. 

Yes, you can do a journal entry once you create a bill. The Journal setup will be an account payable for credit and the tip for the contractor as a debit. To proceed, follow the provided steps below:
 

1. In the +New, choose Journal entry from the OTHER panel.
2. Select Accounts Payable in the first line item and put the tip amount in the Credits, then put a name on where the tip belongs.
3. For the second line item, click the dropdown and choose the +Add new to add a Tip account.
4. Use Other Expense in the Account Type and Other Miscellaneous Expense for the Detail type, then enter the name for that expense account.
5. Click Save and close.
6. Once the new account shows in the second line item, put the tip amount in the Debits.
7. If done, hit Save and close.

After that, you can now pay bills. I'll show you:
 

1. In the +New, click Pay Bills from the VENDORS panel.
2. Tick the box of the payee's name who would like to receive the tip.
3. Once finished, select Schedule Payment or Save and Close.

You may also have a report regarding your employee's tips earnings using QBO. To understand this, visit this link: Pay and report tips.

Let me know if you have further questions about managing employees' transactions. I'll get back to you. Have a good one.