Think Ahead: Properly Account for Your PPP Funds

April 22, 2020

As businesses have received or are about to apply for the second round of money from the SBA under the Paycheck Protection Program, you should start thinking beyond the application process.

As a CFO, accountant or bookkeeper, your role is more critical than ever to help properly account for and use the funds procured through the PPP. If used on authorized expenses and accounted for properly, you will make the difference in proving up forgiveness.

You need to start thinking now about how to account for the money on your books. You will be required to show proof that the funds were used for their intended purposes, so take the time and set up accounts that either only account for your funds or accounts that have limited use. This will make it easy to distinguish the proper transactions from your normal business.  

From an accounting standpoint, there is no guidance on how to treat the funds on your books. However, there is tax guidance that forgiveness will not be deemed a cancellation of debt such that it becomes income. That said, you should follow the common practices involved with a debt that has been forgiven by a lender until there is more guidance.

 

Here’s what you should do.

  1. Set a liability account on your balance sheet for the amount received (total amount even if all will be forgiven)
  2. Create a non-operating income account in your general ledger to track the amounts as they are forgiven
  3. Move money from your designated bank account to your operating account as you also complete step 2
  4. Do not create separate expense accounts for salaries/rent and other expenses as this will just make things more confusing
  5. Track everything for eight weeks
  6. Make adjustments for any payroll/salary/rent changes you make along the way
  7. Keep proof of payment handy for your bank

 

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