Paycheck Protection Program loans are intended to support businesses with their expenses, with the primary goal to keep Americans employed in pre COVID-19 jobs as well as help with their expenses.
PPP provides cash-flow assistance through 100% federally-guaranteed loans to employers who maintain their payroll during this public health emergency. If employers maintain their payroll, the loans would be forgiven, helping workers remain employed and affected small businesses (and our economy) snap-back faster after the crisis.
Here is a simple way for businesses to track their PPP activity, recording the loan and keeping track of relevant expenses so that reporting is straightforward. Forgiveness of the loan will depend, at least in part, on the accuracy and completeness of the records. Also, be mindful that record-keeping and reporting with regards to loan forgiveness will be between the business and their lending institution, not directly with the SBA.
The first step is to enter the loan deposit as an Other Current Liability, making sure to track the funding date of the note. Once you know how much of the loan will be forgiven, your accountant may want part of the loan moved to Long-Term Liabilities, but that can be done later. If you pay commissions on earnings, for example, then it is extra important to record the loan proceeds as a liability/loan and not as income. Putting the loan proceeds in a liability account records the fact that it is expected to be repaid at some point.
Next, create a custom report in QuickBooks for tracking PPP Expenses. The easiest way is to begin with a Profit & Loss Summary (P&L) and filter the report to show only the specific expenses that meet the forgiveness criteria; mortgage interest, rent and utilities are eligible expenses, as is payroll. For payroll expenses, make sure to include the gross pay and state and local taxes only, and not federal taxes or any fees for processing the payroll. Please check with your accounting professional to ensure you are capturing all the possible expenses. Set a custom date range for the report, from the loan funding date to 24 weeks after that date. Change the report title to “PPP Expenses ($XXX,XXX)” where $XXX,XXX is the loan proceeds amount, and have QuickBooks memorize the report. Note: last week there was an update to the CARES Act that extends the time window to incur forgivable expenses from 8 to 24 weeks after your loan was originated (or the end of the year, whichever occurs first).
Lastly, enter the expense transactions as you normally would, dating them accurately and coding them to the appropriate expense accounts. The PPP Expenses report you memorized will automatically pick up the relevant expenses and include them. Note: There is a per person cap of how much Gross Wages are forgivable, which may not be easily visible on a simple P&L report; separate tracking in Excel may be required; check with your accounting professional for details. (Thanks to Jody Linick for the comment! https://www.linkedin.com/in/jody-linick-19550941)
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