Cash tips and card tips: how to record them without inflating the hotel’s sales

In a hotel restaurant, tips come in through more doors than in any other restaurant: cash on the table, on the card terminal, handwritten on the check signed to the room and sometimes inside a company agreement. Every door is a chance for the tip to be confused with sales, and when that happens the hotel pays tax on money that is not its own and the server gets less than what was left for him.

A tip is not a sale, and the close has to say so

A tip is money the customer gives to the service team. The hotel receives it in custody, sometimes processes it through its own terminal, and hands it over. It is never food and beverage revenue, it never enters the calculation of revenue per occupied room and it is never added to the report that goes to the controller as sales. Under the hospitality accounting standard it lives in a liability account: something the hotel owes, not something it earned.

The problem is that the shift close is a single document and in practice the tip sits right next to the sale. If the point of sale has no column of its own for it, the cashier puts it wherever it fits: in cash, in card or in a footnote. And that footnote is what ends up inflating the number the owner looks at in the morning.

The rule that organizes everything else: the close has a sales section, split by payment method, and a tips section, also split by method. The two sections are totaled separately and never cross. Total sales reconcile against the envelope, the bank and the PMS; total tips reconcile against what is paid to the team.

Cash tips: why they never enter the sales drawer

The cash tip is the simplest and the most mishandled, because physically it is identical to sales cash. The customer leaves 100 on the table, the server picks it up and keeps it. So far, no problem: that money should never have touched the drawer. The problem appears when the server, out of convenience or a badly explained policy, puts it in the drawer “so it gets counted at the end”.

If it enters the drawer, the closing count shows an overage the cashier cannot explain or, worse, an overage that offsets a real shortage and hides it. That is why cash tips have their own physical container, separate from the drawer, and their own record: at closing, the captain or the server counts the tip jar and enters it in the tips section of the close, under cash.

That record is not there to tax the tip or to police the server. It exists so the day’s distribution has a basis and so that, if a guest claims a tip was left and “nobody received it”, there is a number to answer with.

Card tips: the voucher, the batch and the advance

When the customer adds a tip on the terminal, the voucher comes out for more than the check. The check says 800, the voucher says 900. The 100 difference is a card tip, and the money is not in the hotel: it is at the bank, it will arrive in a few days and it will arrive minus the acquirer’s fee. Meanwhile the server wants the tip today.

Here there are two decisions every hotel makes and should put in writing. The first is whether card tips are advanced in cash at closing or paid through payroll. The second is who absorbs the acquirer’s fee on the tip: the hotel or the server. There is no single right answer, but there is one obligation: the server must know the rule before receiving the first voucher.

In the close, the card tip lives in its own section, separate from card sales. Reconciliation with the terminal uses both together: the terminal batch must equal card sales plus card tips. If you advance the tip in cash, that cash out is recorded as a tip payment and deducted from the envelope, with the list of who was paid how much.

The mistake that hurts most

Recording the card tip as a sale because “that is how it shows on the terminal”. With that, the hotel declares a sale that never happened, pays tax on it, inflates revenue per occupied room and, when the controller reconciles with the bank, the deposit never matches. It is the most expensive mistake because of how many reports it contaminates.

Tips on the room charge and in the company agreement

The hotel restaurant has a tip no other restaurant has: the one the guest writes by hand on the check signed to the room. That amount travels with the folio charge, the front desk collects it at check-out and the hotel is left holding money that belongs to the server. If the PMS does not separate it, it is collected as if it were consumption and nobody pays it to anyone.

The solution has two parts. When sending the charge to the folio, the point of sale should send two lines, not one: the consumption, which is food and beverage revenue, and the tip, which is a separate charge with its own code. That way the front desk collects the full amount and the controller knows how much of what was collected is a tip still owed. The room charge page (Room charge) describes how each line is separated before it is sent.

With company accounts the question comes first: does the agreement allow tips? Some agreements cover meals up to a cap and nothing else; others include a fixed service percentage. What cannot happen is the executive writing in a tip, the check closing to the agreement and the company receiving an invoice at month end with an amount nobody negotiated. Define the rule in the agreement and make the point of sale enforce it.

How the server gets paid: distribution and record

Distribution is a hotel policy, not a system feature: per server, per shift team, with or without a share for kitchen and bar. What the system must do is give the distribution a clear basis and leave a trace of the payment. A procedure that works in most hotels:

1. At shift closing, the close shows total tips by method: cash counted in the jar, card according to the vouchers and folio according to the charges sent with a tip line.
2. The captain or shift manager applies the agreed distribution rule and produces the list of what each person is owed.
3. Cash tips are handed over on the spot against a signature on the list. Card and folio tips are advanced in cash or accumulated for payroll, according to the written policy.
4. If they are advanced in cash, the cash out is recorded as a tip payment, with the signed list as the receipt, and deducted from the envelope that goes to the general cashier.
5. The controller reconciles weekly: tips recorded in the close against tips paid, by method. Whatever remains unpaid is a hotel liability with a name on it.

On taxes and withholdings there is no universal rule: every country treats tips differently. What is universal is that the controller needs the record by method to apply whatever applies. Without the record there is no way to comply, and the tip ends up as informal money inside a formal hotel.

An illustrative example with numbers

The figures below are invented to show the mechanics of the close and the distribution. They are not data from any hotel. The hotel restaurant closes the dinner shift with sales of 20,000 before tax: 5,000 in cash, 9,000 by card and 6,000 in room charges. Tips for the shift were 500 in cash in the jar, 900 on card vouchers and 600 written on folio charges.

Had the cashier put the tips into sales, the night’s report would say 22,000 and revenue per occupied room would rise ten percent without anyone having eaten more. The controller would look for 22,000 in the envelope, the bank and the PMS and find it nowhere. With the separation, sales are 20,000, the liability to the team is 2,000 and every external source matches its column.

If the hotel advances card and folio tips in cash at closing, 1,500 leaves the drawer recorded as a tip payment, the envelope to the general cashier carries 3,500 instead of 5,000, and the close shows it with the signed list. Nothing is lost: it only changed pockets, with a record.

Mistakes that inflate sales or shortchange the server

• Adding the terminal tip to card sales. It inflates sales and tax, and the bank deposit never matches.
• Putting cash tips in the drawer. It creates false overages that hide real shortages.
• Sending the folio a single line with consumption and tip together. The front desk collects everything as consumption and the tip stays in the hotel.
• Paying tips out of the drawer without a signed list. The envelope comes up short and nobody can prove why.
• Letting the company agreement receive tips it never negotiated. It ends in a credit note and an awkward call with the company.

What to do this week

1. Open last night’s close and verify tips are in a section separate from sales, by method. If they are not, that is the first fix.
2. Put a physical container for cash tips outside the drawer and announce it to the team with the rule that no tip ever enters the drawer.
3. Check with the front desk whether restaurant folio charges arrive with the tip on a separate line. If they arrive as one line, agree the change with the controller.
4. Write the card tip policy: advance or payroll, and who absorbs the fee. Hand it to every server, signed.
5. Take last night’s terminal batch and confirm it equals card sales plus card tips.

Inn Restaurant records tips by method in their own section of the close, sends the folio charge with the tip on a separate line and produces the distribution list the server (Server) signs when paid, with the cash out recorded in the drawer (Cash and shift close). If you would like to see your hotel’s close with tips kept apart, the fifteen minute demo is booked at (contact).