Hi everyone, Bobbie Witt here, with Bookkeeping Confidential, here with you today. We are a full-service virtual bookkeeping firm here to assist small businesses such as yours to create profit in your business and understand your numbers. If at any time you have questions regarding this content, please feel free to reach out to us at 1-877-454-2249. We’re happy to help. Today, I’m going to show you how to record your PPP funds once they are received in your bank account.
Paycheck Protection Program (PPP) funds that you receive is a loan that is considered a liability within your books, and accrues 1% interest annually over the loan period of 2 years.
Use these scenarios to enter the PPP funds in your books:
Case Scenario 1
On May 1, 20220, Example Client received $50,000.00 in PPP funds from the Small Business Association to cover payroll, rent, utilities, and mortgage interest for the 8-week time period from May 1.
This is how to record the funds in your book. Debit the 50,000.00 in your bank account and credit the PPP loan payable.
Debit Credit
Bank Account $50,000.00
PPP Loan $50,000.00
Although it is highly recommended that you separate this loan in your books, by naming the account with PPP in the context. With the PPP, the 1% interest payments are deferred for 6 months from the actual loan date. Example Client will accrue interest each month. For the first six months, Example Client will record the interest each month. The total for each month would be $50,000.00 x 1% divided by 12months.
$50,000.00 x 1%/12 = $500/12 = $41.66/month
You’re going to then debit your interest expense and credit your interest payable:
Debit Credit
Interest Expense $41.66
Interest Payable $41.66
After 6 months, Example Client will pay the accrued interest ($41.66 x 6 months) and record as follows:
Debit Credit
Interest Payable $249.96
Bank Account $249.96
If the PPP loan is still outstanding after 6 months, Example Client will have to make the interest payments and record as follows:
Debit Credit
Interest Expense $41.66
Bank Account $41.66
This will be done every month after the first six months.
It is not required to set up a separate bank account to track the loan and its use. Example Client can do so to ensure they use the loan so that it will be deemed “forgiven.” Example Client will record the PPP loan as follows:
Debit Credit
PPP Loans Savings Account $50,000.00
PPP Loan Payable $50,000.00
When Example Client has payroll, rent, utilities, and mortgage interest expenses, they will transfer from the PPP Loans Savings Account to their Operating Account to cover those expenses.
Example Client, a business owner, can ask their lender to forgive the loan. Loans can be forgiven when the proceeds for payroll, mortgage interest, rent and utilities for the 8-week time period following the loan date and if the number of employees and the payroll levels are maintained.
It is understood that 75% of these loan funds received are to be used for payroll and payroll benefits and the remaining 25% on the other items. This is where your bookkeeping is going to be especially important and that these expenses are accounted for and a report for your lender can be quickly recorded with precise information. And, we would be very happy to help you get this done.
We hope this information was useful to you. Visit our website or give us a call for more information.