Tips and credit cards

credit card sales include tips and paid out in cash how do i post

You need to clarify your question. A credit card transaction is a credit card transaction. No cash is involved. Please explain the circumstances.

To account for tips separately create an income account for tips and add a second line in a Receipt transaction. One line for the sale and a second line for the tip.

“Cash Out” on a credit card sale does not change the value of your float/takings, it only changes the make up of it.

If a record of “Cash Out” transactions is required, I would suggest creation of an asset account, called say, “Cash Out clearing” and add two more lines to the receipt transaction (one positive and one negative) to this asset account.

The asset account will (should) always be zero, but will contain the Cash out transactions,

@AJD, you obviously assumed @timmy121362 was referring to a situation in which something is sold to a customer, the customer adds a tip, and the customer gets cash back. That may be what is being asked about, but details were very sparse. Given the lack of information, the question might have pertained to a credit card payment that included a tip and resulted in cash back. People sometimes use terminology loosely.

Regardless of which direction the money is going, there needs to be an additional transaction, because you can’t transact cash money to/from a credit card. So just adding lines posted to the clearing account won’t work.

@timmy121362, we await more complete information about the situation you are trying to record.

On re-reading the original post I do concede that I may have interpreted it incorrectly and, if so, I apologize.

However, if I have interpreted correctly and it is about a business making sales as a credit card/EFTPOS merchant and offering cash out at the check-out, then I stand by my comments.

@AJD, can you provide more details about your recommendation? I am not seeing how you would get money out of the cash account.

@Tut I would suggest that before you and I go any further with a to and fro discussion we should wait for @timmy121362 to clarify the original request.

In the meantime, @Tut, please look at the thread referenced by the link below (especially the last post by you) which deals with a similar scenario to that which I describe in this thread.

I agree. That is why all three of my previous posts included such a request.

That thread discusses several features of Manager that have since been replaced. Regardless, there are important differences between that situation and the current one:

  • No sale was taking place in the other situation. There was only a cash-out payment in exchange for a receipt via credit card. Conceptually, the customer who got the cash was just acting as a conduit for transfer of money from a cash account to a bank account. The current equivalent in Manager would be an inter account transfer. But an inter account transfer always results in money going into a destination cash or bank account. The business ends up with the same total balance in bank plus cash accounts.
  • In the situation now being discussed, there is a sale, and the proceeds of that (whether debit or credit) need to be posted permanently to a bank account, changing the overall total of cash plus bank accounts. So, while the cash-out in the current situation could be considered equivalent to the transaction in the earlier thread, the sale portion cannot. It requires a receipt or payment transaction.

The reason you cannot just add your clearing account transactions to the receipt or payment transaction is that approach does not allow you to bring the cash account into the process. Go back to the thread you linked and read my description of the two hypothetical steps involved in a transfer. Note the credit to a cash account and the debit to a bank account. Passing money into and out of a clearing account does not accomplish what is needed, because with the required receipt or payment only the bank account is involved. Your offsetting entries to a clearing account are also offsetting entries to the same bank account.

I withdraw from this thread - no further comment.


ok i will try to spell this out. someone gets a haircut for $40 and charges it, but he adds $10 on the charge for a total of $50 which well be deposited in bank, but only $40 goes to sales, $10 is the tip for the employee. so the owner gives the employee her credit card tips from the
register essentially from her pocket. i just want to know how to account for that activity.

@timmy121362, thank you for the details. This is a different situation from what any of us assumed, because the cash is going to a third party.

The first thing to take into account is that, in your jurisdiction, tips are taxable income. The owner cannot just give cash “from her pocket” to the stylist. The process for accounting will depend on whether the stylist is a statutory employee or an independent stylist contracting for space. Rather than wasting time covering all possibilities, I will wait for further information from you about the circumstances. You may also need to consult an accountant for information on special rules for your industry, also. (Several industries where practitioners rely heavily on tip income have such rules.) Also let us know about those.

@timmy121362 without getting bogged down in a lot of needless mumbo jumbo about this or that legality the accounting transactions upon which you requested guidance on are these:

  1. For the credit card receipt transaction
    Dr Bank 50
    Cr Sales 40
    Cr Tips Clearing 10 (this would be a Balance Sheet account)

  2. For the cash register payment transaction
    Cr Cash Register 10
    Dr Tips Clearing 10

The Tips Clearing account will now have a zero balance. As to how these are recorded / reported externally of the business is outside the scope of Manager, just as an employee annual income statement is outside the scope of Manger but which the tips maybe a component of.

@timmy121362, you should be aware that ignoring the “needless mumbo jumbo” will get you into serious trouble in your jurisdiction. Your books will balance, but you will be unable to satisfy tax withholding and W2 reporting requirements if your stylists are employees or Form 1099-MISC requirements if they are subcontractors. I repeat my invitation to provide further information. I will be glad to outline procedures for your case.

Once again, complexing the situation with “needless mumbo jumbo”. The customer’s “tip” has nothing to do with the business so there are no employee / contractor ramifications.

Lets say that the customer pays in good old cash. At the conclusion of the service the customer pays the business what’s due, the 40 charge. End of business story.

The customer then turns to the stylist and gives them a 10 gratuity (tip). This transaction has NOTHING to do with the business as it’s only between the customer and the stylist. Therefore, unless the stylist has an obligation to report these tips to the business, the tip transactions are external of any business accounts and stylist contractual arrangement.

When a customer pays the tip via credit card, then the business is only acting as a trustee - handling money which doesn’t belong to the business on behalf of other parties.

Yes, the tips could be taxable income but only for the party who actually receives the benefits of those tips.

You are simply wrong about this. There are real accounting needs imposed by regulation that cannot be ignored.

Your simple, cash-only example gives incorrect information. In @timmy121362’s jurisdiction, the business is obligated by law to collect and report tip income information. Whether the business ever touches the money is irrelevant to reporting requirements.

The stylist definitely does have such an obligation if he or she is an employee. In fact, if tips are customary in an industry, they will be presumed to have been given at standardized percentages if nothing is reported. And they will be taxed, not just as income, but for social security as well, and would be included in compensation for purposes of calculating retirement plan contributions, etc. When a stylist is a subcontractor rather than employee, the reporting burden is no less, but responsibilities and exact procedures shift.

Failure to properly account for and report tip income is a crime in @timmy121362’s jurisdiction, no matter who the money was initially paid to. A barbershop owner operating as you suggest would be subject to criminal penalties, tax liens, and potential seizure of business assets. The authority does not regard such conduct as a minor, administrative offense.

But the cash-only situation was not what was described. In @timmy121362’s scenario, the money passes through the business’ accounts by virtue of being charged on a credit card. Whether the stylist is an employee or subcontractor, all payments to the stylist must be reported. And the business is not merely a trustee, as you claim. Under some circumstances, it is an employer, paying additional tax levies directly on tip income and withholding other monies for remittance to the tax authority. In different circumstances, it acts as a customer who must report in detail all amounts passed through to the subcontractor. Sometimes, the business is required to withhold various taxes from payments to a subcontractor, who would make further accounting to the authority. This is a form of tax withheld at the source.

You make several references to this even though they have never disclosed any jurisdiction.
Assuming, disclosing or investigating a user’s jurisdiction is a breach by you of their privacy.

Furthermore, this forum is NOT a regulatory or taxation advice service and you should refrain from providing such advice as you are only relying upon self determined assumptions.

The user asked a simple accounting question, “how do i post”, and that is the limit of this forum.
Their legal obligations are their own responsibilities.