How to book sales tax and tips from studio sales in a journal entry
Updated
The short answer
Credit sales tax collected to a Sales tax payable account and tips to a Tips payable account, not to income. They sit on the cash side of the entry (inside the card and cash totals) and on the credit side as liabilities, so revenue shows only the sale amount.
How to do it by hand
- Create the two liability accounts. Add Sales tax payable and Tips payable as other current liability accounts if you do not have them.
- Total tax and tips for the month. From the sales reports, take the sales tax collected and the tips collected for the same date range as your revenue.
- Check the tender totals include them. The card and cash totals are what customers actually paid, which is the sale plus tax plus tip. Your debit side must be those full totals.
- Credit revenue with the sale amount only. Revenue categories should be net of tax and tips. If your report shows them gross, subtract before you map.
- Credit the two liabilities. One credit to Sales tax payable for the tax, one credit to Tips payable for the tips.
- Pay them out when due. Pay tax to the authority and tips to staff by your normal process, and record that as payments against the liability accounts, not as expenses.
Why this happens
If tax and tips are mixed into revenue, income is overstated and the liabilities never show up. If they are left out of the credit side, the entry will not balance. See the example below, where 350.00 and 200.00 sit in their own lines.
| Account | Debit | Credit |
|---|---|---|
| Payments clearing: Card | 12,400.00 | |
| Payments clearing: Cash | 600.00 | |
| Gift card liability (redeemed) | 250.00 | |
| Class pack revenue | 9,000.00 | |
| Membership revenue | 3,000.00 | |
| Retail revenue | 700.00 | |
| Sales tax payable | 350.00 | |
| Tips payable | 200.00 | |
| Total | 13,250.00 | 13,250.00 |
When the manual way is not enough
A journal entry posted to a sales tax account does not necessarily feed the tax return screens inside QuickBooks, and tax rules differ by state, so check with your accountant how they want the liability tracked and reported. This is bookkeeping software, not tax advice.
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