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How To Enter PPP Forgiveness Into QuickBooks

This post addresses entries to make in the books when a PPP loan has been forgiven, all or in part. As PPP forgiveness for Round 1 starts to roll in, we need to move the PPP loan off the Balance Sheet and onto the P&L in QuickBooks.

Jan 6th 2021
Owner FitBooks Pro
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Loan Provider in Mumbai

The Consolidated Appropriations Act 2021 (CAA 2021), which was passed on December 27, 2020, provides many of the answers the country was waiting for regarding the Paycheck Protection Program (PPP) in particular. In recent days myriad articles have been written and webinars hosted detailing the key features of CAA 2021 and the second round of PPP.

This post does not address those details, but instead offers some suggestions on how to enter the loan forgiveness information into QuickBooks.

Scenario 1: PPP is Forgiven 100 Percent

If you followed the prevailing advice at the time that PPP loans came out, you posted the PPP loan to the Balance Sheet as a Long Term Liability (or Other Current Liability), named the loan account something like “PPP Funds Received,” and deposited the funds to your newly opened PPP Bank (or the regular Business Checking).

Using a Journal Entry, Zero Dollar Check or a straight deposit, the resulting entry to record the loan was:

              DR: Checking

              CR: PPP Funds Received (Account type: Long Term or Other Current Liability)

              To record PPP funds received

Now that the loan has been forgiven, and no loan interest is due or payable, you’ll want to remove the loan from the Balance Sheet and post the Income to the P&L.

Here is one suggested entry:

              DR: PPP Funds Received

              CR: Non-Taxable PPP Income (Account type: Other Income)

              To record PPP Loan Forgiveness

I like to use a Zero Dollar Check in QB for this kind of entry, instead of a Journal Entry, because the entry includes a Payee. I write the check from a clearing Bank account called “Journal Entry Bank” which when used properly always has an account balance of $0.00.

To write a Zero Dollar Check, post the first line of the check to the “PPP Funds Received” account in the amount of the loan, and post the second line of the check to “Non Taxable PPP Income” as a negative number for the loan amount, thus creating a check for $0.00.

Scenario 2: PPP is Not 100 Percent Forgiven

If for whatever reason the PPP is not forgiven in full, and a balance needs to be paid off, with corresponding interest due, consider this kind of entry. In this example, we’ll say the PPP loan was for $20,000, but only $15,000 was forgiven.

Again, receipt of the $20,000 loan was recorded like this:

             DR: Checking

             CR: PPP Funds Received (Account type: Long Term or Other Current Liability)

             To record PPP funds received

To record the forgiven portion, use the same formula as in Scenario 1, but for only $15,000:

              DR: PPP Funds Received

              CR: Non-Taxable PPP Income (Account type: Other Income)

              To record PPP Loan Forgiveness

This entry will leave $5,000 on the Balance Sheet for the PPP loan balance to be repaid.  When the monthly loan payments are due, enter a single payment check payable to the loan servicing company using splits, posting the Principal paid to the “PPP Funds Received” account and the loan interest to the Interest Expense, or Interest Paid account.

Conclusion

There are many PPP scenarios unique to each business, but the above provides solutions for the simplest scenarios recording entering PPP forgiveness in the books. Note: While this post is QuickBooks-specific, the general principles will apply to any accounting software package.

Jody Linick is an AIPB Certified Bookkeeper, a QuickBooks® Certified Pro Advisor, and a member of the Intuit Trainer/Writer network.  Her company, FitBooks Pro [www.fitbookspro.com] (formerly called Linick Consulting), specializes in remote bookkeeping services for professional services firms using QuickBooks Online. You can find her series of Blog posts here.

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