Tips Income and Expense

Mileah · ‎February 13, 2021

I am a cafe and payout credit card tips to my employees daily. My accountant set up the CR tips as an Income account saying that the tips are paid as an expense when reported. I can't find details about how to set this up, anyone know of a discussion or tip for this?

ChristineJoieR · ‎May 07, 2024

Let's dig into some ways with how to record tips, Mileah. Let me lend a hand and share the detailed steps to achieve this in QuickBooks Online.

To properly account for the tips and gratuity, the first step involves establishing a Current Liability account to monitor the amount in QBO.

Here's how:

Select the Gear icon, then Chart of Accounts and New.
From the Account Type dropdown, choose Other current liabilities.
From the Detail Type dropdown, pick Current Liabilities.
In the Name field, type a relevant name such as "Tips/gratuity".
Select Save and Close.

After that, create a journal entry to track the tip money from your bank account. Ensure that you record a debit entry in the newly created account under "Other Current Liability" and simultaneously input a credit entry in the relevant section of the bank account from which the amount will be withdrawn.

Follow the steps below:

Select + New.
Select Journal entry.
On the first line, select an account from the Account field.
Debit the Service account and credit the Liability account.
Check the amounts - you should have the same amount in the Credit column on one line and the Debit column on the other. This means the accounts are in balance.
Enter information in the memo section to add more details.
Select Save and new or Save and close.

You can also consider getting some advice from your accountant to keep books accurate and expense accounts to use. Do you want to have one? Visit this article: The ProAdvisor Program.

Plus, this article will let you understand the difference between the Cash and Accrual methods. It generates a report on your income and expenses differently. See the detailed steps: Choose between cash and accrual accounting methods in QuickBooks Online.

There you have it! Thank you for choosing QuickBooks Online, and we look forward to serving you better in the future.

View solution in original post

Rustler · ‎February 13, 2021

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.

molly17 · ‎May 05, 2021

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?

AlexV · ‎May 05, 2021

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:

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.

OliviaA5 · ‎May 06, 2024

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!!

KayePe · ‎May 06, 2024

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:

In the +New, choose Journal entry from the OTHER panel.
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.
For the second line item, click the dropdown and choose the +Add new to add a Tip account.
Use Other Expense in the Account Type and Other Miscellaneous Expense for the Detail type, then enter the name for that expense account.
Click Save and close.
Once the new account shows in the second line item, put the tip amount in the Debits.
If done, hit Save and close.

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

In the +New, click Pay Bills from the VENDORS panel.
Tick the box of the payee's name who would like to receive the tip.
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.

Mileah · ‎May 07, 2024

Can I follow these steps for recording and paying out tips when they are received via credit card and paid out from weekly cash sales?

ChristineJoieR · ‎May 07, 2024

Let's dig into some ways with how to record tips, Mileah. Let me lend a hand and share the detailed steps to achieve this in QuickBooks Online.

To properly account for the tips and gratuity, the first step involves establishing a Current Liability account to monitor the amount in QBO.

Here's how:

Select the Gear icon, then Chart of Accounts and New.
From the Account Type dropdown, choose Other current liabilities.
From the Detail Type dropdown, pick Current Liabilities.
In the Name field, type a relevant name such as "Tips/gratuity".
Select Save and Close.

After that, create a journal entry to track the tip money from your bank account. Ensure that you record a debit entry in the newly created account under "Other Current Liability" and simultaneously input a credit entry in the relevant section of the bank account from which the amount will be withdrawn.

Follow the steps below:

Select + New.
Select Journal entry.
On the first line, select an account from the Account field.
Debit the Service account and credit the Liability account.
Check the amounts - you should have the same amount in the Credit column on one line and the Debit column on the other. This means the accounts are in balance.
Enter information in the memo section to add more details.
Select Save and new or Save and close.

You can also consider getting some advice from your accountant to keep books accurate and expense accounts to use. Do you want to have one? Visit this article: The ProAdvisor Program.

Plus, this article will let you understand the difference between the Cash and Accrual methods. It generates a report on your income and expenses differently. See the detailed steps: Choose between cash and accrual accounting methods in QuickBooks Online.

There you have it! Thank you for choosing QuickBooks Online, and we look forward to serving you better in the future.

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