PPP Loans – GAAP Financial Accounting Considerations

If you are like many of the business owners in the United States, you first heard of the Small Business Administration’s Paycheck Protection Program (“PPP”) loans, hastily gathered the required documents for your bank, and crossed your fingers. Well if you were one of the lucky ones, now the funds have arrived in your bank account. As the bookkeeper or controller who prepares the financial statements, you are probably asking yourself “how do I record this?” We have a few considerations for you to get these loans recorded on the books appropriately.

Liability vs income

A key component of the PPP is the opportunity to have a large portion of the loan forgiven if certain criteria are met. Should you just go ahead and record all or a portion of the funds received as income in anticipation of future loan forgiveness? Technically you’re not going to want to do that. This is still a legally binding loan agreement until you have been released by the lender. As such, recording in the form of a loan payable is appropriate.

Recording eligible expenses

Perhaps another question you have is “what should I do as I pay the eligible expenses that count towards my PPP? When I pay these, should I be reducing the loan down to $0?” No, you should instead expense all of these as incurred and leave the loan balance unaffected.

Loan forgiveness

You have reached the end of the loan, applied for forgiveness, successfully had all or a significant portion of your loan forgiven, and received correspondence from the financial institution documenting that you have been legally released from the loan. The appropriate treatment for this step is to reduce loan for the forgiven portion, with the offset being again the P&L – BUT remember, it won’t be taxable.   

Contact Us with Your Questions

If you have questions or need help financial statement accounting for your PPP loan, contact our professionals at The Innovative CPA Group at 203-489-0612. Or contact us online.