How to record tips

[Tristan Chase]

On Sunday, Apr 11, 2004, at 15:16 America/New_York, Derek Atkins wrote:

> Floyd Hagen <flohagen at montanadsl.net> writes:
>
>> Howdy,
>>
>> Could someone tell me how to properly record tip money in the US? My
>> wife makes tips where she works, and this is new to me.
>>
>> It looks like they tax her tips in her paychecks, but subtract that
>> amount out from the net pay, since she already got it.
>>
>> I've set up a Income:Wife Salary:Tips account.  I did a split
>> transaction in our Assets:Checking account and part of that was a
>> deposit to Income:Wife Salary:Tips. The Assets:Checking account
>> balances out, but the Income:Wife Salary:Tips account shows a 
>> negative balance.
>
> You've got it backwards.. You want to pull money OUT of the
> income account and deposit it into your checking (or cash)
> account.
>
>> We use the tip money as spending cash, so I guess I need to somehow
>> record the tips as income as well as an asset, and somehow get the
>> checking deposit to balance out. Right?? How do I link 3 accounts?
>
> In this case you can just have two transactions:
>
> I:WS:T -> Assets:Cash
> I:WS:S -> Assets:Checking
>
> Do all the entering from the asset accounts and the direction
> will make sense, because you can see whether the money is coming
> into or going out of the asset account.
>
>> Thanks.
>
> -derek
>

Floyd,

I've been in the restaurant business for many years. While it may seem 
confusing that your wife's tips show up on her paycheck only to be 
subtracted right out again, it is the standard way to account for that 
money for tax purposes. Your guess is right.

I have used the setup that Derek suggested for years (previously on 
Quicken and on a bunch of linked spreadsheets before that). Account for 
the cash tips in the Cash account and in the transfer column put 
Income:Wife Salary:Tips. If you deposit any of that cash into your 
Checking account, then that transfer is from your Cash account to your 
Checking account. Any money she makes on that actual paycheck should go 
into the Checking account (Income:Wife Salary:[Paycheck or whatever you 
want to call it]). This way you can track the tip income, where the 
cash actually goes and any transactions involving your checking 
account. I hope this clarifies the tip thing. Restaurant accounting is 
a dark art among dark arts...

-Tristan Chase