If your company receives tips from customers, these need to be accounted for in your books accordingly. Although this creates additional steps for your bookkeeping process, it’s something that needs to be done to protect yourself and the business and create a paper trail for all.
To accurately record tips in QuickBooks, you first need to create a Gratuity/Tips Liability Account. Why? This is because the tip money belongs to the employee, so it is a liability to you, as the business, until they receive their tip payment. This liability account should be used to just track tips. If you have multiple employees that receive tips, you may find it beneficial to break down each item by each employee’s name and their tip amount.
Click the gear icon and select Chart of Accounts. Then, click New at the top right. Choose “Other Current Liabilities” from the drop-down menu. Under Detail Type, select “Other Current Liabilities” and enter “Tips/Gratuities” in the Name Field. Then, save this information.
Now, from here, you can set-up a new Product/Service and name it “Tips/Gratuities,” which will then allow you to add tips/gratuities as a line item on invoices and sales receipts.
If your business pays out tips after depositing it into the company’s bank account, follow the below steps for accurate recording steps.
To record any tips received by employees throughout the day and ensure the employee receives the tip amount in their paycheck or via a separate check, click the “+” in QuickBooks and select “Check.” Select the correct bank account to pay the tips from and select the correct employee to receive the tips. Then, enter the exact amount and select “Gratuity/Tips” in the Account field. Then, click save.
However, if your business pays out tips prior to depositing it in your bank account, you will need to follow a slightly different process. The steps are listed below.
Select the gear icon, then click on “Receive Payment.” Choose the Undeposited Funds bank account to deposit into. Then, select the gear icon again and click on “Journal Entry.” For the first line, select the Tips Liability Account, and enter the amount you paid out to employees as a debit. Then, in the second line, select Undeposited Funds and enter the same tip amount as a credit. Then, click save. Then, click the “+” icon and select Bank Deposit. Click on the original payment or sale receipt and also the journal entry just created. This will reduce the total by the tip amount you paid to employees. Then, save this information.
As with any new bookkeeping process, continue to do your research, pack your patience, and practice, practice, practice!