Loan Provider in Mumbai

Covid-19 Bookkeeping Part 1: How to Properly Record PPP Loans and Spending

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This article discusses how to post PPP Loan income and expenses into accounting software, if opening a separate bank account for the PPP funds received.

Apr 21st 2020
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For this article, I have teamed up with my colleague Diana Cohn of Corner Office to detail ways to book income and expenses related to the Paycheck Protection Program, or PPP loan, from the SBA. This article does not go into detail about who is eligible or how to apply for these funds.

Instead, we will focus on entries to make in accounting software once you have received the PPP loan disbursement and started spending the funds. All examples use QuickBooks as the accounting software, so modify accordingly if you or your clients use a different program.

PPP Loan Income Setup – When Opening a Separate Account

From what we hear, some accountants and advisors are suggesting businesses open a separate bank account (in real life, at their bank) for Covid-19 funds received. A separate bank account is more audit-friendly, avoids co-mingling of funds, and creates a clear audit trail.

However, right now we’re hearing it is difficult to open a new bank account, with long lines and wait times, and there may be certain costs with opening a new Business Checking account (bank may require you to order some checks). Still, this post assumes that you are able to open a separate bank account for PPP funds. Now we’ll cover what to do in QuickBooks.

Set Up the Loan Account

This loan will be a Liability (not free Income) until you determine how much of the loan will be forgiven. As such, you need to create a loan Liability account on the Chart of Accounts.

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Replies (19)

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By SkinnVinny
Apr 22nd 2020 16:50

Nice article. I've heard of some people opening dedicated bank accounts for PPP funds, but that seems unnecessary to me, especially if there are extra fees involved.

As far as I know, as long as you can demonstrate that you incurred/paid the relevant expenses (payroll, rent, utilities, etc) you're in the clear.

So, if you received $10K and had payroll of $8k over 8 weeks after receiving the funds, you should be fine.

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Replying to SkinnVinny:
Jody Linick
By Jody Linick
Apr 24th 2020 23:31

I agree, if that's simple, it will be nice and clear.

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By JJR
Apr 22nd 2020 17:10

Great article, but I chose the same path as SkinnVinny. I did NOT open a separate account for our PPP funds, but now after reading this, I'm not so sure. Especially since I'm the opposite of a QB expert, I use QB for the MOST basic things, and probably could utilize it more. I'm curios though, if I do not open a new account (for the cost involved and b/c we are such a small company and the funds are less than $50K) how do I "mark" or "tag" my normal payroll as PPP funds? I use Assisted Payroll via Intuit and I don't know if I can go back in and just change the liabilities to the expense I created for the PPP Loan funds?

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Replying to JJR:
Jody Linick
By Jody Linick
Apr 24th 2020 23:32

For you, it might be best to just track the PPP spending in a spreadsheet, instead of trying to make QB report it directly.

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Replying to JJR:
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By SimonP
Oct 9th 2020 09:39

Would creating a Class to record the spending of the PPP funds work for you?
Just a thought.

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By Jessi
Apr 24th 2020 11:30

Thank you for the taking the time to write this article, it is very helpful. I had decided to open a new checking account for the PPP funds and treat it similar to a LOC. I then heard and read that it would be best to have the PPP approved transactions debited from the new PPP account. What is the best way? Keep the expenses debiting out of the operating account or use the PPP account? It sounded like the simple solution - update the banking info for payroll and the covered expenses that are auto debited for the 8 week period. All transactions would be in one place and there would be no need for transfer transactions. How could that not be the right choice for my company? Instead of being proactive, I was stuck on trying to make a decision until I read “ Some non-allowable expenses might be included in your payroll run, such as payments to Independent Contractors, payroll fees, and reimbursable expenses.” Why didn’t this occur to me? I read the rules probably 20 times if not more. Decision made!! It is more efficient (in my opinion) to leave the expenses debiting out of the operating account and to reimburse the operating account for approved expenses only. Thank you!

I appreciate that you pointed out entering single transactions for the expenses instead of a lump sum. There are so many people dealing with unfamiliar territory right now and I hope they came across this site. Yes, more transactions equals more of your time but believe me, the extra time you spend now entering in separate transactions along with notes can save you hours and hours not to mention the headache you can get if there is an error! I have had issues time and time again trying to reconcile or my time wasted because the CPA had a question all because someone wanted to “save” time or did not think it was necessary to write/type what the transaction was for.

Speaking of time - It can become an issue if you do decide to have the transactions flow through the PPP account. You want to be able to use that money correctly from day one and with bank branches being closed, the process of opening a new account is not a quick in and out visit at this time.

We all do things differently and in this case there is no one perfect way to do it. What it boils down to is what SkinnyVinny said about record keeping.

Have a blessed day!

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Replying to Jessi:
Jody Linick
By Jody Linick
Apr 24th 2020 23:36

Thanks for your comments, Jessi. Every business is going to have unique scenarios, so it was hard to write a detailed, yet generic, article. We will each have to exercise our best judgement about what works/doesn't work. In all cases, I think a spreadsheet will come into play at some point. Hopefully some of the steps outlined in the article will make the final audit/accounting easier.

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By AnitaN
Apr 25th 2020 02:56

Thank you for this really good article. It's well-organized and easy to follow. The step-by-step is fabulous.

I'm *eagerly* awaiting Part II, the version that addresses how to handle the PPP loan without a new bank account. Our banker discouraged opening a new account just for this, which I understand. So the money is in our main operating account.

We are thinking of using a "job" in QuickBooks desktop for tracking any pertinent expenditures. We are a nonprofit and already use classes to segregate restricted, unrestricted, restricted spending, and transactions related to one of our auxiliary volunteer groups. (I am more comfortable with jobs and running reports on them than I am with classes.)

We also intend to keep a redundant Excel spreadsheet for reporting to our board and for ultimately stripping out the ineligible parts of payroll (which we run through Paychex).

Will keep checking this site for the sequel!

Thank you again for a helpful article.

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Replying to AnitaN:
Jody Linick
By Jody Linick
May 1st 2020 23:54

Hi, I hope you saw that the sequel was posted (see link below). I had not considered creating a separate Job for the expenses; I would have to play with that in a QB Sample Company file to see the results - interesting suggestion!

https://www.accountingweb.com/bookkeeping/covid-19-bookkeeping-part-ii-r...

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By sgamble
May 1st 2020 22:26

Thank you for this article. We use class tracking due to having two separate locations. I know that this scenario avoids class tracking, but can it still be utilized with this method?

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Replying to sgamble:
Jody Linick
By Jody Linick
May 1st 2020 23:51

Yes, Class tracking can be used, but since you can only use one Class per income and expense, it precludes using the Class you would normally select for a particular expense. I suggest you give it a try, and see if you like the results when you look at your P&L by Class.

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Meow
By KellyF
May 8th 2020 19:34

THANK YOU. We just got our PPP funded TODAY into a new bank account at a different bank. My employer was insisting that I re-route our payroll and other automatic debits for qualified payments to the new account, but I told him I didn't think that was necessary. I did some googling and found this article. When I showed it to him, he said it made perfect sense and told me handle the PPP accounting exactly as you have outlined here.

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By Cheryl Johnson
May 14th 2020 19:32

Has anyone had problems with the expenses showing up on the Accounts Payable report? I recorded the loan as a deposit and paid expenses from the bank account we are using for this purpose. The problem I am having is that when you pay a bill it automatically decreases the Accounts Payable Regular account but it needs to show as coming out of the PPP Funds account. I did a journal entry to credit the A/P Account and debit the PPP loan liability account and so the entries are reducing the PPP loan balance; however, when I printed off an A/P report to pay some bills I noticed they were on the report, so I can't figure out how to get those expenses to show as reducing the PPP loan account without showing up on the A/P report. Any suggestion? Thanks!

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By jstavish
Jun 6th 2020 03:21

Great article, appreciate the insight. Have they ruled on bonuses for staff under $100,000 in salary as to whether or not this was an allowable expense? I am reading conflicting reports. We would like to bonus staff for all of their hard work and dedication during this time, nominal amount, but want to make sure this would not cause an issue. Thank you!

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By kroquemore
Jun 8th 2020 23:17

Hi Jody, thanks so much for your help!

I accidentally had my loan funds deposited into my regular business checking account. Then I transferred the funds to my "PPP Loan account". Do I need to show this transfer in my reporting and if so how do I add this to what you've shown above for quick books online ? Thanks!!

Thanks (0)
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By kroquemore
Jun 8th 2020 23:17

Hi Jody, thanks so much for your help!

I accidentally had my loan funds deposited into my regular business checking account. Then I transferred the funds to my "PPP Loan account". Do I need to show this transfer in my reporting and if so how do I add this to what you've shown above for quick books online ? Thanks!!

Thanks (0)
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By kroquemore
Jun 8th 2020 23:17

Hi Jody, thanks so much for your help!

I accidentally had my loan funds deposited into my regular business checking account. Then I transferred the funds to my "PPP Loan account". Do I need to show this transfer in my reporting and if so how do I add this to what you've shown above for quick books online ? Thanks!!

Thanks (0)
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By [email protected]
Jun 10th 2020 03:10

Thank you for the information. We did not receive PPP funds, however we have a SBA loan and they are covering some of the payments. How do I record the deposit of the funds so I can move them to show the paydown of the loan?

thanks!

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By [email protected]
Jun 22nd 2020 17:20

This article was very helpful. I received the Economic Injury Disaster Loan (EIDL) would the same book keeping entries be made for this loan too? If not could you please say how the book keeping would be done. Thanks.

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