What it means
Square takes card payments at the counter and deposits them in your bank, minus its fees. Each deposit holds four different things: sales, sales tax collected, card tips and fees. Only the sales are revenue. The tax belongs to the state, the tips belong to staff and the fees are an expense.
The $2,240.55 deposit is $2,000 of sales, $160 of tax and $150 of tips, less $69.45 of fees. The entry credits sales for the full $2,000 and books the $69.45 as a processing fee expense, so revenue isn't understated. Tax goes to sales tax payable and tips to tips payable.
The tips liability clears when staff are paid. The $150 goes out on their next paycheck through payroll, which debits tips payable and puts the tips on each employee's pay record. Cash sales rung up on Square never appear in a deposit, so they're recorded from Square's sales reports and the cash taken to the bank.
Compare sales in the books to Square's sales summary for the month. Sales from the last day may deposit in the next month, and they still belong to this one. Tips payable should equal tips collected but not yet paid through payroll. Sales tax payable should match what's due on the next return.
Sales tax nexus covers where you owe tax. Gusto is where the tips get paid out, and Shopify payouts follow the same gross-up logic.
Why it matters. A Square deposit lumps together sales, sales tax and card tips, minus Square's fees. Only the sales are revenue.
Square isn't a ledger, and we don't connect to it. We work only in QuickBooks Online and Xero. This page covers how Square shows up in the books kept there.
The entry, worked
A deposit of $2,240.55 covers $2,000 of sales, $160 of sales tax and $150 of card tips, less $69.45 of processing fees.
| Account | Debit | Credit |
|---|---|---|
| Cash | $2,240.55 | |
| Payment processing fees | $69.45 | |
| Sales | $2,000.00 | |
| Sales tax payable | $160.00 | |
| Tips payable | $150.00 | |
| Total | $2,310.00 | $2,310.00 |
Revenue is the $2,000 of sales. The tax belongs to the state and the tips belong to staff until each is paid over.
Common questions
Are tips collected through Square revenue?
No. Card tips belong to your employees. Hold them as a liability and pay them out through payroll, which clears the liability and puts them on the employee's pay record.
How do I record Square fees?
Credit sales for the gross amount and debit a processing fees expense for what Square kept, so cash matches the deposit. The fee is an expense, not a reduction of sales.
How do I record Square gift card sales?
As a liability, not a sale. The cash comes in when the card is sold, and revenue is recognized when it's redeemed for something. The share you expect never to be redeemed can be recognized as breakage in step with redemptions, unless state unclaimed-property law requires you to hand it over.
Read further
- How to reconcile Stripe payouts to your booksFounder guide · 4 min
- Card and ACH payments: applying and reconciling themFounder guide · 6 min
- Sales tax nexus for startups: when you owe tax in a stateFounder guide · 4 min
- Sales tax nexusRelated · Tax · Wayfair, 2018
- GustoRelated · Payroll
- ShopifyRelated · Commerce
- ReconciliationRelated · Control
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.