How to record your PPP loan
Our ParishSOFT Software Support Team loves to help our customers learn how to use the ParishSOFT Accounting Software to their greatest advantage. Helping you learn how to use our software to accomplish your accounting tasks and responsibilities is our goal. We do know how our software works, but we are not qualified to give accounting advice. Therefore, we may offer ideas of how you might approach a particular challenge, but it is incumbent upon you to check with a professional accountant to determine the best accounting procedure you might take. If you belong to a diocese, they are an excellent resource for your accounting questions.
Sections in this article
- Is it a loan?
- How to record it as a loan
- How to track the PPP monies
- If the PPP loan is forgiven, how to record it as a grant
- What if the loan is not forgiven
- How to keep good records to support your request for loan forgiveness
Is the PPP a loan?
While it is possible that at the end of this period the PPP loan will be forgiven and will turn into a grant, the most conservative immediate recording of monies received would be to enter it as a loan until it is forgiven at which time it may be converted to a grant.
How to record the PPP as a loan
On the date the cash is received, use either a Deposit or a Journal Entry to record the transaction:
Debit Cash
Credit PPP Liability
*See the next section for ideas on the actual accounts to use.
How to track the PPP loan
There are several choices here to track the PPP monies. Note, these are options and not directives. You will design your own way of tracking your PPP usage and our software offers these tools to do so.
- Projects: Create a project called PPP Loan and add this project to every qualifying payment.
- If you use an outside payroll company, you may also want to add another project called PPP Payroll Loan. This will give you a way to easily calculate how much of the loan is used for payroll as compared to other expenses. Both of these project codes may belong to the same project group.
- Talk to your accountant about how much to set for the project budget taking into account the percentage allowed for payroll as compared to expenses. Adding a budget will help track how much you've spent against the PPP loan.
- If you use the PPP Project option, each qualifying transaction would be flagged with the PPP Project.
- Keep in mind you can add projects to bills later. It doesn't have to be at the time of the transaction. Also, you can always remove a project from a bill.
- Also, if at the end of the cycle you realize that the total expense goes over the amount allowed, you may remove the project code from the last bill and use a journal entry to divide the expenses, only using the project on the portion that meets the loan.
- You may use all of your normal accounts when using this method of tracking expenditures.
Note: PSA Payroll does not allow for use of Projects. Please read the information on tracking payroll.
The following options are not as flexible as using projects and we do not recommend using them, although you could use them in combination with projects.
- Dedicated Accounts: Instead of recording the monies as a loan, some customers may choose to record the incoming and outgoing funds as dedicated accounts. See How/when to use dedicated accounts. Please talk to your professional accountant to determine if this is the correct path for you to take.
- This is not an option for those using GAAP Accounting.
- The problem with recording the money this way is if it does not turn into a grant, you will have to do some backtracking since it will be considered a loan.
- Specific PPP Accounts: Instead of Projects, you may create new accounts specific to PPP and use those for every transaction. Note: You may want to think about how your budget will be affected by using existing accounts as compared to creating new accounts taking into consideration the funds are not coming from your normal sources of income. This again is a discussion to have with a professional accountant. Some examples of possible accounts are:
- PPP Liability Account* This account may either be a new account or an account used with a PPP Project Code.
- PPP New Bank Account (if you open a new bank account specifically for this purpose); see How to add a new bank account.
- PPP Interest Expense Account
- PPP Expense Accounts (other)
- Grant PPP CARES Income* (You may need this account when the loan is forgiven and then becomes a grant as discussed in the next section.)
Depending on which of the above methods or combination of methods you choose to use to track your funds, you will then conduct ledger transactions as usual but use the specific method for each transaction until the monies are exhausted:
- If you opened a PPP Bank Account, payroll and qualified bills/checks would be written strictly out of that account
- If you create a PPP Project, each qualifying transaction would be flagged with the PPP Project;
- You may use all of your normal accounts when using this method of tracking expenditures.
- You may also want to add a budget for the PPP Project and run reports to track spending against the PPP Project Budget.
- As noted above, PSA Payroll does not allow for use of Projects.
- If you create new accounts, use those accounts to track expenses; these also may be used in combination with projects.
Payroll tracking
If you do not use PSA Payroll, you may use Projects as suggested above. If you do use PSA Payroll, continue reading since Projects may not be assigned during the payroll process. Please discuss the following option with your accountant. Note: as you track your funds, make sure to calculate how much of the PPP funds are available for payroll keeping in mind that payroll must use a certain percentage of the monies.
Create a new payroll PPP Pay Item. This can be used with the existing expense account. You may want to create two PPP Pay Items, one for taxable and the other for non-taxable pay items.
- This will allow you to run a Current Earnings Report which will show the PPP Pay Item and give totals. The advantage of this is you will want to track the percentage of the PPP funds you are spending on Payroll as compared to other expenses to ensure you are meeting the percentage guidelines.
- When processing payroll, add this PPP Pay Item to the timecard and remove any other pay items.
- After processing payroll, run the Current Earnings Report from the Payroll → Reports → Paycycle section. This will give you the total amount used against the PPP for Payroll.
- Once the funds begin to run dry, you must take care to only do this pay item update for the remaining funds. If total payroll gross pay is 4,000 but there is only 2,000 left in the PPP loan/grant, make sure you only add this PPP Pay Item for 2,000 worth of the pay.
If the PPP loan is forgiven, how to record the PPP as a grant
Once forgiven, the PPP loan becomes a grant. To record this transaction, you may want to create a new PPP CARES Act Income Account.
On the date you learn the loan has been forgiven:
Debit PPP Liability Account for the full amount of the loan. This will zero out the liability you recorded when you first received the loan.
Credit Grant PPP CARES Income
Note: If the loan is only partially forgiven, add the transaction noted above for the amount that was forgiven, and continue to treat the balance as a loan.
What if the loan is not forgiven
If you recorded the monies as a loan in the first place, you will not have any backtracking to do. You may simply treat it as a loan and start to make payments.
Suggested entries for recording the loan payment
Debit PPP Liability Account (most likely monthly payments)
Debit PPP Interest (Expense)
Debit Other expense incurred
Credit Bank Account
Information on recording a loan and recording payments of a loan can be found here.
If you did not record the initial funds as a loan, you must backtrack with a journal entry. The journal entry must reverse your first transaction where you recorded the monies as dedicated income or as PPP income. It must also record the monies as a liability as outlined here. This entry must be dated on the date you first deposited the funds.
Once you have recorded the monies as a loan, you may begin paying it back as documented at the beginning of this section.
NOTE: persons with the role of Church Administrator can backdate a Journal into a closed month provided a higher level organization has not disabled that ability. It may be necessary for the higher-level organization or ParishSOFT support staff to reopen the month if it has been closed.
How to keep good records to support your request for loan forgiveness
The following sites may have useful information regarding record keeping
- Establishing Controls Surrounding Your PPP Loan, Cerninin & Associates LLP
- Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- Coronavirus Relief Options
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