Recording Tips Payable in QuickBooks

Recording tips into QuickBooks can be confusing at first. Restaurant bookkeepers know the frustration involved in getting it right.

The challenges of tip recording in QuickBooks:

Tips are part of the main restaurant deposit.
Often times tips are paid out in cash.
The server and host wage reports have to match what was recorded as income.
An honesty system is in place requiring the servers to declare all of their tips accurately.
Servers tip bar tenders and hosts. How is this reflected?
Cash by nature can be hard to track.
Servers are measured by the sales they generate- tips payable should reflect performance. 15 percent is standard.
There are multiple systems at work. The point of sale (POS) the payroll company and QuickBooks. They should tie out.
Reimbursement checks to staff confuse the bookkeeper. What was a manual check for tips and what was a reimbursement?
Failure to record tips payable accurately ensures your restaurant financials are not correctly stated.
Restaurant managers withdraw cash for petty cash. Petty cash is used to pay back of house workers. That cash should not be misrepresented as tips payable.
Accurate bookkeeping depends on coding tips payable properly.

Tips Payable in the Chart of Accounts:

To the uninitiated Tips payable belongs on the balance sheet as a liability account.

How Tips Payable is Recorded:

Debit Cash: 100.00

Credit Tips Payable: 100.00

Tips are not to be recorded as restaurant revenue.

Your bookkeeper will log into your POS (Point of Sale) system and pull the daily report. The cash for the tips will be entered as a debit and a reflecting liability will record the amount owed. At the end of the period – can be day, week or month depending on your process, the reverse entry will show the cash tips paid and the liability zero’d out.

Tips Payable: 100.00

Cash : 100.00

Accuracy and timing are critical in this entry. End of fiscal year may leave accrued tips. That would be reflected on the Balance sheet as Accrued Tips Payable.

Recording Tips Summary:

Tips payable is an easy entry to make once you understand how to do it. Do not be confused with the over all restaurant deposit. Not all of the restaurants deposits are revenue. Sales tax and tips are included in that number. Diligent bookkeeping can easily solve this problem.

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