Best Practice: How to Record the Payroll Protection (PPP) Loan

Only After the Loan is Forgiven Should it be Written Off

Many clients have been asking us how to record their PPP loan once it is received. The correct answer is to record the deposit as a separate loan on the Balance Sheet. Only after the loan is forgiven should it be written off. When writing off the loan the corresponding account should be an income account called Loan Forgiveness. This will separate this income from all other business income you have for the year.

Forgiveness of the Loan

The loan forgiveness period is 24 weeks from the date the funds were deposited in your account, due to changes in the law. Congress has also changed the percentage of the loan that can be used for rent, mortgage interest and utilities from 25% to 40%. If you need help seeing where you stand on forgiveness please give us a call. If you received your loan from Quickbooks, the Online subscription has a special report to see where you stand on your forgiveness. Unfortunately, as the accountant we do not have access to this report. We will have to sign in as you, design the report and save it for you. Soon Quickbooks Online will have reports available for businesses who obtained their PPP loan from their bank.

The federal government has not supplied the banks with specific procedures on how the loans are to be forgiven, only broad guidelines. Therefore each bank will probably have its own rules just like they did for obtaining the loan. However we expect that that the banks will want payroll registers, cancelled checks, ACH pay stubs and other supporting data. If you need help running special reports on Quickbooks or printing prior pay stubs we are here to help.

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We know that all businesses have been impacted by Covid-19. Please drop us a line and let us know how you and your business are doing – we’re here to help serving South Charlotte, Pineville and Fort Mill, SC.