Accounting for Paycheck Protection Program Loans

Much attention has been focused on the Small Business Administration’s Paycheck Protection Program (PPP) Loans, especially with regard to interpretation of various provisions and on the process under which all or a portion of the loan may be forgiven. (See related posts below)

In June 2020, the American Institute of Certified Public Accountants (AICPA) issued guidance on the accounting by non-governmental entities for forgivable PPP loans in the form of Technical Question and Answers (T&Q 3200.18). Additional resources for CPAs can be found at the AICPA’s Coronavirus (COVID-19) Resource Center.

The AICPA guidance indicates that the PPP loan proceeds may be reflected as income when the loan is forgiven, or may be taken into income as the funds were expended for their intended purpose (payroll and related costs, rent, mortgage interest, etc.) However, the reporting entity must disclose its policy for accounting for the loan proceeds.

This release also provides guidance as to the reduction of the liability by recording the income separately or by reducing the related expenses that were paid for with the loan proceeds. Again, disclosure of the approach to the accounting is required.

We expect that most entities will want to separately reflect the income related to the reduction of the PPP loan, and that those with a December 31st year end will likely have applied for and received approval for forgiveness by the time annual financial statements are issued. However, accounting for interim periods will likely require a decision as to the accounting methodologies.

Entities subject to taxation or those pass-through entities that distribute cash to facilitate shareholder or partner tax payments will also need to consider the fact that, presently, expenses paid for with PPP loan proceeds are not deductible.

If you have questions about PPP loan forgiveness or the accounting process for these loans, please contact your GYF Executive at 412-338-9300.

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John Yanak

John Yanak

John has more than 40 years of experience providing audit, accounting and consulting services. His expertise also includes significant transaction work in both the buy and sell arenas as well as specialized services for employee benefit plans.
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