USA Restaurant books

[Scot King]

I met the owner of a restaurant today who purchase it June 2014. The sales tax in not being recording properly. They have a point of sale system in which the items are marked with either to have the sales tax included or excluded from the amount. You can buy a beer for $3 and the tax in included in the price. 8% * $3=.24 so the beer cost 2.76. On the other hand some of the items have the tax in addition to the cost of the item. What happens is when you buy a beer, and then buy a $2 taco for example, the system will charge 2.16 for the taco and $3.24 for a total taxes collected of .40. which is wrong.

On another issue, is a restaurant supposed to provide the payroll company with the correct tip information? Should there be a liability account for tips? For the credit card sales with tips included, the servers don't receive this money in cash in the same fashion. There is a tips holding bank account, which isn't a real bank account but just a drawer for paying out tips.

Thanks,
Scot King,CPA

 

[smallbushelp]

What state is the business in? I'm familiar enough with sales tax to know that some states allow a restaurant to calculate tax one of two ways, both of which you described. But the facility needs to be consistent. You should get familiar with the sales tax rules and procedures and then review the programming of the POS system.

And yes, the restaurant is responsible for providing the payroll company with the correct tip information. Including tips that the employees receive in cash. There is an IRS form that employees are required to complete and submit to the employer every month. There is a lot of good information on the IRS website about this topic.

Does the restaurant pay out the tip money in cash or is it included in the payroll checks? If tips are included in the payroll checks, then yes, you probably would want to set up a liability account ("tips payable" maybe) to help you book the daily sales transactions.

 

[Scot King]

I met with him today. Each server carries a little pouch of cash with $50. At the end of the day, they pay themselves from the pouch for the tips on the credit cards and the cash tips. The manager there tells me that he has no responsibility for reporting their tip income. People would not complete the form 4070 I believe it is. He had his servers complete this once for him. The only way to get the right information is for each server of which there are 27 to complete a daily log sheet of their tips. Servers just don't have the discipline or inclination to do this mundane task. He did not setup a liability account since he says they get paid in full each night. I don't see how this can always be possible with only $50 in the pouch as tips could easily run over this on a Friday or Saturday night.

 

[smallbushelp]

I don't know what you want to do here then. But the IRS is very clear that an employer must collect payroll taxes on tips and if the employees aren't reporting their tips, the employer must then allocate a percentage of his gross receipts. You'll probably want to discuss the IRS requirements with your client and advise him of the repercussions of not complying. If he doesn't want to comply, then maybe he's not a good client for you.