Please refer to the Certum Solutions YouTube tutorial: How to Use the Tips Feature in QuickBooks Online for a visual demonstration and clarification. This article is intended to be a written summary of video content. 

The most important step to be aware of is that the tip feature must be turned on. From the Accountants tab, navigate to the Home page, then Settings (the gear icon). You’ll then click on Account and Settings and hit Company, then Sales. This will show you the customization field. Scroll down to Accept Tips and turn it on. 

A common question is, “Why don’t tips show in my profit and loss?” The answer is that QuickBooks treats tip income similarly to sales tax. Tips and sales tax aren’t the same, but they’re both “trust” taxes. As the merchant, this income doesn’t belong to you. You’re holding it in trust; sales tax collected belongs to the government. Tips are held to be given to someone else. Tips should not be shown as revenue. QuickBooks will show these tips as liabilities.  

Once you’ve turned on Accept Tips, you will need to create a sales receipt for the funds collected. (QuickBooks can be used as a very simple Point of Sales but isn’t recommended if you have a high volume of sales.) Under the Accountant tab, click New, then Sales Receipt. You do not want to do an invoice, as this would be shown as Accounts Receivable; money that is owed to you. Fill in the appropriate fields of the Sales Receipt like Customer, Payment Method and Service Date.  

It may be helpful to add a header to your receipt which specifies the employee/employees to whom you want to give these tips. You can also create an account where you want the monies deposited or choose to deposit to Undeposited Funds, which is a default account in QuickBooks. Tax can be auto generated, then you need to enter an amount under Tips. You can then Save and Close and return to the Accountant home screen. 

To view where these tips have been entered, navigate to your Reports screen. Go to your Balance Sheet, NOT your profit and loss report. Enter the current Date and scroll down to Undistributed Tips. These are the tips collected on behalf of your employee/employees which have not been dispensed.  

If you created your header in the sales receipt, you could run a report that will show the tip amounts and the employee/employees to which they were given. You can also customize the report by populating the appropriate fields. By customizing and saving the report name, it’s easily found when needed. This enables you to skip going to the balance sheet and go straight to your Custom Reports. 

 The last step is to deduct the amount from the liability account and zero it out. Hopefully, you now understand the process of tracking tips from the receipt to distribution.