PPP Loan Bookkeeping Tips

Hopefully, you applied and will receive a Paycheck Protection Program Loan, or PPP loan. Good job.

But something you need to know. The Paycheck Protection Program Loan, better known as the PPP Loan, will require, in 2 months from now, you to explain to the bank and the Small Business Administration how the money was spent.

Both your accounting records and your documentation will be used as the determining factor for the forgiveness of the loan.

Accordingly, this post discusses how to appropriately document the loan transactions. And then the post provides some practical ideas related to you not losing forgiveness. If after reading through this post you need additional assistance please consider hiring a Professional Bookkeeper to assist you with proper reporting.

PPP Loan Bookkeeping Tip #1: A Good Payroll System

Mostly, you receive forgiveness for your PPP loan based on your payroll costs over the eight weeks that follow you receiving the loan funding.

The formula limits the forgiveness you receive for non-payroll-costs to less than 25%.

But with the PPP loan forgiveness formula, your business must accurately account for its payroll costs, including timing and amounts. This is no job for an amateur. Not even if you’re trying to save a few hundred bucks.

PPP Loan Bookkeeping Tip #2: A Real Accounting System

Another suggestion: Maybe you should also use the whole PPP loan thing as the prompt to step up to a small business accounting program like QuickBooks, if you haven’t done so already.

PPP Loan Bookkeeping Tip #3:  The Audit Trail

You may want to set up a new bank account for the PPP loan money. And then, what you can do is, pay amounts that trigger forgiveness from this bank account.

With a separate bank account, you can easily show the forgivable spending clearly comes from the PPP loan funds.

And if setting up a separate bank account for the PPP loan funds doesn’t work? Then you may consider setting up an internal subaccount in your accounting system that would allow you to show the PPP funds sep.arately and then make an internal transfer as funds are used for payroll costs

QuickBooks also provides a feature called “classes” that you can use to track all of the transactions that connect to a PPP loan.

Bookkeeping Tip: If you use QuickBooks classes, you would probably use a class like “PPP loan” to tag the income and expenses related to the PPP loan. The payroll costs, rent, utilities and mortgage interest funded with the PPP loan proceeds would be classified as “PPP loan.” The PPP loan’s “cancellation of debt” income would be classified as “PPP loan.”

PPP Loan Bookkeeping Tip #4: Owner Compensation

Your small business should receive funding for paying the business owner’s payroll or compensation (up to $8,333 a month).

And the S corporation shareholder-employee W-2 wages easily get accounted for.

PPP Loan Bookkeeping Tip #5: Document Every Disbursement AND Hire a Professional Bookkeeper to assist you

A final tip? Document the dollar amount, timing and deductibility of every disbursement.

Hopefully you are working with a professional Bookkeeper who can assist you with the task of properly documenting every dollar.

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