PPP Accounting under GAAP
To our Clients and Friends,
As we approach year-end, we have had a number of our business clients ask about how to record Paycheck Protection Program (PPP) loans and expected forgiveness in their company’s accounting records for 2020. Our answer is (like all good accountants) is – “it depends”.
Companies need to decide which of two options they will use to account for PPP loans and expected forgiveness. Both methods are allowable under accounting principles generally accepted in the United States of America (GAAP). A company can account for their PPP loan either as:
- Debt (under ASC 470) – recording PPP loan proceeds on the balance sheet until amounts are formally released or forgiven at which time the entity would record Forgiveness of Debt Income, or
- Conditional grant revenue (under ASC 958-605) – in this case, the entity would record PPP loan proceeds directly as income as it meets the conditions in which the PPP loan was provided (i.e. – when they used the PPP loan to meet payroll and other allowable expenses, then it is recorded as revenue).
Either way, any PPP loan proceeds for which you do not expect to receive 100% forgiveness should be left on the balance sheet as debt until repaid to the respective lender.
The “conditional grant method” generally results in recording income sooner than the “debt” method and allows a company to time the income from forgiveness with the corresponding payment of payroll and other allowable expenses. The “debt” method is typically more appropriate when there is uncertainty in the amount of loan forgiveness.
The Kimble audit team is available to discuss these options with you. We are also currently reviewing the recently enacted 2021 Appropriations Bill which provides additional stimulus provisions (including a second round of PPP funding) and would be pleased to look into any questions you have on these new provisions.
One final note … the accounting treatment referred to above is for GAAP/book purposes. The tax treatment of PPP loans requires separate considerations. The good news is that Congress restored the favorable tax treatment of the PPP program so that most companies will not incur significant tax burdens from PPP loan forgiveness. The Kimble tax team is also available to evaluate the impact of these programs on your company’s income tax liabilities.
As always, please let us know how we can help with these and any related issues.