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Accounting for Your Paycheck Protection Program (“PPP”) Loan:

Recording Receipt of the PPP Loan Proceeds:

GPW recommends that a new general ledger account be created to track the PPP loan proceeds separately from other payables, loans, and lines of credit. You could also consider creating a separate bank account to track that the funds were used only to pay for qualifying expenses.

General journal entry to record on date loan proceeds are received:

ACCOUNTACCOUNT TYPEDEBITCREDIT
CashAsset$XXX,XXX 
New PPP Loan AccountLiability$XXX,XXX
Memo: To record receipt of PPP loan proceeds
Date: When you received the loan proceeds

Recording Payment of Qualified PPP Loan Expenses:

When paying for qualified PPP loan expenses, during the 8-week period after the PPP loan proceeds were received, the general journal entries to record these transactions are the same as when paying those expenses at any other time and dependent on whether you use the cash or accrual basis of accounting.

For those on the cash basis of accounting, you would record the following general journal entry:

ACCOUNTACCOUNT TYPEDEBITCREDIT
Payroll, Employee Benefits, Mortgage Interest, Rent, UtilitiesExpense$XX,XXX 
CashAsset$XX,XXX
Memo: To record payroll, employee benefits, mortgage interest, rent, utilities expense
Date: When you paid the expense

For those on the accrual basis of accounting, your entries may run through accounts payable or another liability account before a credit to cash occurs.

Recording Accrued Interest on the PPP Loan:

The CARES Act provides for deferment of repayment of both principal and interest for six months, but interest accrues monthly at the interest rate of 1%, upon receipt of the proceeds.

ACCOUNTACCOUNT TYPEDEBITCREDIT
Interest ExpenseExpense$XX,XXX 
New PPP Loan Interest PayableLiability$XX,XXX
Memo: To record accrued PPP loan interest
Date: Monthly throughout the six-month deferral period

Recording PPP Loan Forgiveness:

There is currently no specific guidance under US GAAP for how to account for government loan forgiveness. However, consistent with Accounting Standards Codification (“ASC”) the applicable sections that we believe will apply are:

ASC 450-30 – Gain Contingencies

When the forgiveness amount has been determined and certified by the SBA and granted by your SBA lender the loan forgiveness amount would be recognized.

ASC 470 – Debt

When the forgiveness amount has been determined and certified by the SBA and granted by your SBA lender, the release of the liability from the extinguishment of the debt results in income to be recognized.

ACCOUNTACCOUNT TYPEDEBITCREDIT
New PPP Loan AccountLiability$XX,XXX 
New PPP Loan Interest PayableLiability$XX,XXX 
Gain on PPP Loan ForgivenessOther Income$XX,XXX
Memo: To record PPP loan forgiveness and reverse interest accrual on forgiven amount
Date: When SBA certifies amount of loan to be forgiven

Recording PPP Loan Repayments:

The PPP loan has a maturity of two years and both principal and interest payments can be deferred for six months. However, there are no prepayment penalties, and payments can be made at any time, as long as the unforgiven portion is fully repaid within two years.

ACCOUNTACCOUNT TYPEDEBITCREDIT
New PPP Loan AccountLiability$XX,XXX 
New PPP Loan Interest PayableLiability$XX,XXX 
CashAsset$XX,XXX
Memo: To record repayment of PPP loan and interest
Date: When you make the loan repayments

Grace Period for Returning Loan Proceeds:

Beware that the grace period for returning the loan proceeds, if you were not entitled to them, ends May 14, 2020. Click here for more information on ‘Audit of PPP Loan Applications’.