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Accounting and Reporting For PPP Loans

Paycheck Protection Program
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We wanted to provide more information on how to start and successfully scale the loan forgiveness process, for those PPP loans you may have taken out in 2020 and 2021.

​Two key questions you need to ask: How will to correctly account for these loans, and what do you need to do to start the loan forgiveness process?

Accounting options to consider for the PPP Loan:

  1. Will you account for the PPP loan as a government grant?
    A nonprofit organization can account for a PPP loan as a government grant if it believes the PPP loan represents, in substance, a grant that is expected to be forgiven. In accordance with Financial Standards Board (FASB) Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition, and based on timing of recognition and whether or not the contribution is conditional or not, the PPP loan could be deemed to be a conditional grant since the loan is only forgiven if certain conditions are met.
  2. Will you treat the PPP loan as debt, where proceeds are treated as a liability and entities accrue for interest expense in accordance with the loan agreement?

Applying for forgiveness:

PPP loan recipients can apply for forgiveness at the end of their 8- or 24- week covered period (based on when loan proceeds were received).

The first simple steps to the forgiveness process:
1. Fill out the PPP Loan Forgiveness Application, available through the SBA .

  1. Submit the application to the bank that processed the loan. The rules surrounding the amount eligible for forgiveness are more complicated. Nonprofit organization loan recipients should work with their CPA on the application process, and prior to submitting the application, understand the requirements and exceptions that must be met for loan forgiveness during the covered period including:
  • At least 60% of loan proceeds used for payroll costs
  • Average annual salary or hourly wages did not decrease
  • Number of full-time employees was not reduced when compared to either periods of February 15 – June 30, 2019 or January 1 – February 2, 2020, unless at least one exception is met.

* Exceptions mentioned above account for your organization’s ability, or inability, to restore headcount and wages by December 31, 2020.

For PPP loans, a key piece to loan forgiveness is retaining your payroll records and support for what your loan was applied to. According to Atchley and Associates, this is what the SBA will be focusing on in the event there are any questions about how the funds were used.

Borrowers with loans of $150,000 or less will only have to file  Form 35085 for the forgiveness application. This form is simpler than other forgiveness applications and doesn’t require any calculations. Using this form, you will detail the forgiveness amount requested and certify with signatures.

The Coronavirus Resource Center on AICPA  is a regularly updated source of information and most of the content is available to nonmembers.

Is your PPP Loan $2 million or above?

Organizations cannot use Form 35085 if your entity is affiliated with other entities and the total PPP loan across all entities is greater than $2 million.

Key organizational financials to have ready when responding to the Loan Necessity Questionnaire (non-profit borrowers):

  • Income statement for April – June 2020 and April – June 2019
  • Amounts of gifts, grants, & contributions from April – June 2020 and April – June 2019
  • Balance Sheet on the last day of the calendar quarter immediately prior to apply for the PPP loan, including breakdown of each endowment fund, if any
  • Bank Statements
  • Investment Account Statements
  • Wages for any employees whose compensation was greater than $250K on an annualized basis during the covered period.

Note – We strongly recommend before considering any options above for you to take time and review more about each of these methods outlined by Atchley & Associates, LLP.  Should you have further questions we advise you reach out to your CPA or appropriate business advisor.

Are you interested in expediency in auditing, exporting data and reporting? Learn more about how MIP Fund Accounting Software empowers reporting and audits by requesting a demo.

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