It’s a fact that you have to track the use of the PPP loan funds, especially if you want to apply for forgiveness. In addition, the PPP loan use payments are not deductible so the usual way of recording these types of payments in your bookkeeping program does not apply.
Before getting right into it, here is some background info about the use of PPP loan proceeds.
There are two types of PPP loan Allowable Uses – Forgivable and non forgivable.
- Forgivable Uses:
- Payroll costs:
- Salaries and wages for those earning less than 100K (per annum). Wages do not include:
- Wages paid to employees who live outside the US or
- Wages paid that qualify for other credits like sick leave wages covered under the Phase 1 Coronavirus relief.
- Group health insurance premiums
- Employee retirement contributions (i.e. safe harbor match)
- Owner compensation up to 100K (per annum)
- State taxes imposed on compensation like employer portion of NJ SUI & SDI
- Salaries and wages for those earning less than 100K (per annum). Wages do not include:
- Mortgage Interest (no principal) on real or personal property debt incurred before 2/15/2020.
- Real and Personal Property rent and lease payments under leases in force before 2/15/2020.
- Utility payments including electric, gas, water, fuel for auto, telephone and internet access for service that began before 2/15/2020.
- Payroll costs:
- Non Forgivable Uses
- Non Mortgage Interest and mortgage interest for debt incurred after 2/15/2020
- Rent or lease payments on leases in force after 2/15/2020
- Utility payments mentioned above for service that began after 2/15/2020
RE – prepaying above items – The rules only specify that prepaid interest is not allowed – thus, other prepayments seem to be allowed and should be considered if falling short of using the PPP funds for allowable uses.
RE – Separate Checking account – it is recommended to use a separate checking account, but not required, especially if you use a tracking system like the one that follows.
Here is one way to track the PPP loan activity using QuickBooks Online, however, the method can be adapted to any General Ledger Accounting Program.
- Add the following “Other Current Liabilities Type” accounts and sub accounts to your Chart of Accounts.
- Record the amount received from your PPP loan to “PPP Loan Payable”
- Record payments made with the PPP funds to the appropriate sub account of PPP Loan Payable.
NOTE – Notice the Forgivable uses account name is noted as Potential. This is because certain requirements exist to allow for 100% of these types of uses – consult with your advisor for more details on forgiveness limitations.
Related Sources and Links:
. IRS Coronavirus Page
. Small Business Administration Covid-19 Guidance and Loan Resources
. The U.S. Chamber’s Small Business Loan Guide & Checklist
This is general information and should not be relied upon to make business or tax decisions. Instead, please use the above information as a resource to help discuss your business and financial picture with your professional advisers.
(c) 2020 Simoncpa, PC
