Recording a PPP loan in your ledger
There are several phases to the PPP loan and at least 2 entries that need to be made in the accounting: when the loan is received, and when it is forgiven/paid back. So, without further ado, here is a quick set of steps for getting it into the books.
1. Set up a new account in your chart of accounts. The account type should be Long Term Liabilities; name it “PPP Loan”.
2. When the PPP loan is deposited to your bank account, record it to this new loan account.
3. Wait till it's used or needs to be reported on.
The bank will want you to track qualified expenses for forgiveness and fill out their own form to apply for it. You don’t really need to tag these expenses in Quickbooks, but you can create a new “class” named PPP if you’d like to run a QB reports that lumps them together. Each wage, benefit, rent or utility expense that qualifies would be entered with this class selected.
However, the bank will probably be asking to see your 941 reports, payroll reports and rent or utility receipts for supporting documentation, so extra tracking in QuickBooks (or other accounting program is not absolutely required.
4. Once the bank has confirmed the amount of the PPP loan that is being forgiven, it must be moved from “loan” to “income” in your ledger.
To do this, set up another new account in your chart of accounts. The account type should be Other Income; name it “PPP Loan Forgiveness, non-taxable”.
5. Then, do a Journal Entry. Using the dollar amount that is forgiven, debit that amount from PPP Loan and credit the same amount to PPP Loan Forgiveness, non taxable.
6. *Important! If there is any balance left in PPP Loan (run a balance sheet report to see), that is the amount that must be paid back.
When paying the loan amount back, post the repayment (of principal only, not interest) to the PPP Loan account and post any interest accrued to Interest Expense. That will zero out the balance owed.
The interest will show up as a business expense on the Income statement (Profit & Loss report).