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Covid-19 Bookkeeping and the SBA EIDL Application

Our profession is busy helping our clients navigate the financial lifelines being offered to businesses by various government entities. Guiding your clients through obtaining such financing is one of the most valuable things you can do now.

Apr 14th 2020
Owner FitBooks Pro
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business loan


One financial option to serve your struggling small business clients that seems particularly attractive to some is the Small Business Administration (SBA) Economic Injury Disaster Loan Emergency Advance (EIDL). This article will go over the EIDL process so you can better advise the clients that need it most.

EIDL Loan Overview

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an EIDL advance of up to $10,000. This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application. This loan advance will not have to be repaid.

EIDL Loan Application

The EIDL application asks for gross revenues and costs of goods sold (COGS) “for the twelve months prior to the date of the disaster.” Nowhere does the application ask about expenses, only COGS. So what does this mean for a sole proprietor who provides services, but has no COGS?

For example, a person who works from a home office (no lease or rent; no separate utility bills); no employees, no subcontractors; does not buy any goods at wholesale and resells them at retail? Basically, they have none of the traditional COGS expenditures.

As such, their application will show plenty of income for the last 12 months, but no offsetting COGS (because they have none) and no Expenses (because the application does not ask for any). To me, it seems unlikely this applicant would receive the EIDL. 

I think it’s possible to put an entry in the COGS section of the loan application for a Sole Proprietor services provider. But first, let’s have a mini refresher course on COGS and compare COGS or cost of sales/services (COS) to Direct versus Indirect Expenses.

COGS Review

Here is a fairly reasonable and customary definition of COGS: 

“The direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. Cost of goods sold is also referred to as "cost of sales (COS)." Quick review: The way COGS normally shows on a P&L or Income Statement is like this:

Revenues or Gross Income
= Gross Profit
= Net Income (the Bottom Line)

Direct Versus Indirect Expenses Review

Sometimes, the Expenses section of a Chart of Accounts will be split into Direct Expenses and Indirect Expenses. This solution can solve for the lack of COGS or COS for a services provider with a home-based office – all expenditures directly related to the provision of the service can appear as a Direct Expense. Indirect Expenses are all the other expenses. 

The way Direct and Indirect Expenses show on a P&L or Income Statement is like this:

Gross Income

-Direct Expenses
-Indirect Expenses
= Net Income

Here are some examples of Direct vs. Indirect expenses: 

Direct Expenses

  • Direct labor costs
  • Commissions
  • Rent

Indirect Expenses

  • Insurance
  • Office Supplies
  • Postage
  • Printing & reproduction 
  • Telephone
  • Utilities

Can Certain Expenses Be Considered COG, COS or Direct Expenses?

So perhaps your services provider clients have no direct costs of producing goods, but they do have legitimate costs for producing their services. Perhaps they subcontract some work to Independent Contractors (ICs) working in their same line of work.

For example: a bookkeeping and accounting firm hires ICs to do contract bookkeeping and accounting work.  A case can be made that the expenses for this labor can be posted to a COS or Direct Expense.  

Note: in this example, the Independent Contractor IT person or web guru is not working in the same domain as the service provider, so their fees would be an Indirect Cost. 

Perhaps your service provider client has certain software dues or other subscription fees for tools without which they cannot provide their service. Maybe they have to travel to deliver their services and the travel is not client-reimbursable. 

Back to the EIDL Loan Application

Since the EIDL loan application only asks for “COGS” would it be appropriate to put some of the COS or Direct Expenses we listed above into the COGS section of the loan application for providers of services? 

I interviewed some U.S. tax preparers and bookkeepers and put together an amalgamation of their responses. Spoiler alert: The consensus is “yes,” it is okay to put a figure in the COGS section on the loan application, even if the P&L or Income statement itself does not have a COGS account on the Chart of Accounts, as long as the figure represents expenditures which were directly related to the cost of producing the service.

Here’s what they had to say:

“I think it is okay if a loan application differs from the tax return; the names of accounts on an Income Statement do not have to exactly match the names of expenditures on a loan application, as long as the integrity of the purpose of the expenditure remains intact.”

“From a tax perspective, it really doesn’t matter if an expenditure is a COGS, COS or an Expense, as it won’t impact the outcome of the tax return. There is no tax on Gross Margin, so for tax reporting purposes, it makes no significant difference which account is used; the differentiation is really more for internal analysis.” 

“As for moving expenditures around after a tax return has been prepared, so the P&L matches the loan application, I see nothing morally or technically wrong with that, as the bottom line should remain the same. Although, I don’t think it’s really necessary to actually change the Chart of Accounts to match a loan application.” 


As always, backup documentation and adhering to best practices are key for completing any kind of government form. If you are a bookkeeper assisting your clients with an EIDL application and you intend to put a figure in the COGS line, keep clear and concise backup documentation for the source of that figure. 

Also, it is always a best practice to touch base with the tax preparer, to make sure everyone is on the same page. 

Update From the SBA Dated 04/14/2020: “To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.”

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 (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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