The Paycheck Protection Program (PPP) has raised questions from business owners and their internal finance team, including their bookkeepers, on how to record the various transactions that are a result of businesses receiving PPP financing, and the subsequent transactions that follow, including PPP loan forgiveness, PPP related expenses, and the payment of any unforgiven PPP loans received.
We will look to provide some guidance related to these issues in this article. Because of the large number of business owners that uses QuickBooks for their company’s accounting needs, we will incorporate QuickBooks in our presentation.
Assuming that you are in QuickBooks, start first by setting up the following new QuickBooks accounts:
|Account Name||QuickBooks Account Type|
|Loan Payable – PPP||Long-Term Liability|
|Income from Loan Forgiveness (Non-Taxable)||Other Income|
|PPP Expenses||Other Expenses|
|Payroll||Sub-account – PPP Expenses|
|Health Insurance||Sub-account – PPP Expenses|
|Retirement Costs||Sub-account – PPP Expenses|
|State Unemployment Tax||Sub-account – PPP Expenses|
|Office Rent||Sub-account – PPP Expenses|
|Equipment Rental||Sub-account – PPP Expenses|
|Light, Heat, Electricity, and Power||Sub-account – PPP Expenses|
|Telephone||Sub-account – PPP Expenses|
|Business Mortgage Interest Expense||Sub-account – PPP Expenses|
Record the proceeds from your PPP loan as “Loan Payable – PPP”.
Record the expenses connected to PPP forgiveness under “PPP Expenses”, categorizing each item to the applicable sub-categories above. A report from this account for the forgiveness period can be used as a guide and support to complete your loan forgiveness form.
Note that under the most recent SBA guidance, payroll and related costs must be at least 60% of loan costs, with the remaining 40% of the costs allocated to rent, utilities, and business mortgage interest, in order for the entire PPP loan amount to be forgivable. However, partial forgiveness is available if you do not meet these thresholds.
Click on following link for a more detailed discussion of PPP loan forgiveness:
When you get a notice of PPP forgiveness, record the following adjusting entry for the forgiven amount:
Debit – Loan Payable – PPP $xxxxxx
Credit – Income from Loan Forgiveness (Non-Taxable) $xxxxxxx
If the loan forgiveness is the same as the total of PPP Expenses, then you are done.
If the loan forgiveness is less than the total of PPP Expenses, then the excess expenses should be reallocated to your regular operating expenses, for an amount for each category that represents the allocable share of the amount of PPP expenses of each category related to the total PPP expenses. For example (putting aside for simplicity the above 60% rule) , if the total of your excess expenses (amount not forgiven) was $10,000, and the total PPP expenses was $100,000, and $80,000 of the PPP expenses was spent on payroll and $20,000 was spent on rent, then $8,000 of payroll and $2,000 of rent should be re-categorized from PPP expenses to regular operating expenses.
In addition to tracking your potential PPP loan costs that will be forgiven, we are recommending the above format for recording your PPP transactions, because loans that are forgiven under PPP are not taxable income
When you are done recording your transactions, the “PPP Expenses” should equal the amount in “Income from Loan Forgiveness (Non-Taxable)”.
And the amount in “Loan Payable – PPP” should agree with the amount that the SBA has determined is not forgivable and therefore due to them.
Payments on the PPP loan will be divided between interest and principal monthly, with the principal portion being posted to “Loan Payable – PPP” and the interest portion being posted to “Interest Expense”. To ensure continued accuracy, reconcile the “Loan Payable – PPP” account in QuickBooks monthly to the monthly loan statement that you will receive.