PPP Loan Accounting (corrected version; percentage used for payroll v others)

The SBA is still working on how PPP loans should be reported back for forgiveness. The SBA made changes to the PPP loan guidelines at 9 p.m. the night before the PPP began; they will continue to make changes to the PPP for the duration of the program. In the meantime, there are some accounting practices you can do to record your PPP loan. Once you receive your loan, you have 8 weeks to use it for payroll (at least 75% of the loan), utilities and mortgage interest (no more than 25% of the loan).



Keep it simple is THE principle. You need to create two new accounts in your chart of accounts. One is a restricted fund on your balance sheet and the other is a new revenue line in your income statement.

  1. New restricted fund – reasons to have this:
    1. That account will show at any given time how much you need to use before the 8 weeks are up.
    2. If you need to return the money, then it is on your balance sheet and not on your income statement.
    3. If you post the entire amount on your income statement at once, it will skew your income for that month.
    4. So that you can show your banker how you used the money explicitly for the intended purpose by gradually transferring money from the balance sheet to the income statement.
    5. Some banks are asking you to open a new bank account but you don’t need to do that, especially since the money will (hopefully) be gone within 8 weeks.
  2. New revenue line – reasons to have this:
    1. The loan is a significant amount of money and you don’t want that amount comingled with your tithes and offerings.
    2. You need to be able to see months and years later what the amount was, especially when your audit comes around.
    3. You can use this revenue line to prove to your banker that you used/transferred funds to your income statement and the funds matched exactly the payroll, utility bills, and mortgage interest.
  3. Receiving the loan
    1. Accounting: enter the loan as a debit to your bank account and a credit to the new restricted fund.
    2. That’s the only credit entry you’ll make to that account – just one deposit. The rest of the entries are withdrawals when the money is used and transferred to the income statement.
  4. Spending the loan
    1. Accounting:
      1. When you make the payments, make a copy of each invoice and payroll register
      2. Then, make a journal entry transferring that exact amount from the balance sheet to the income statement (debit to the new restricted fund and credit to the new revenue line).
      3. That’s it. You’ve now accounted for how you used the loan.
    2. You won’t have any changes to your expense accounts. Pay your payroll, mortgage interest, and utilities as usual and record them as usual. You don’t need to do anything different.
  5. Record keeping: this is the most important step; without this all your work is for naught.
    1. Keep a paper folder with documents (payroll register & summary, health insurance, retirement invoices, utilities bills, mortgage statement, etc.) which can be shown to your banker to get your loan forgiven. You may need to highlight on your payroll summary which items you’re using toward the loan to avoid the mandate to not include FICA.
    2. Keep track of all your expenses, label the heck out of them – write on them the specific posting number from your accounting software or create a system. You want your banker to be able to look at your documentation and within 5 minutes say the loan is forgiven.


Again, keep it simple. Your banker is currently busy with the second round of PPP loans but at some point (before the final visit) have a checkup with your banker to ensure she or he knows what you’re doing and is good with it.


Lead On!