How To Record Your PPP Loan

If your organization received a Paycheck Protection Program (PPP) loan, you may have a question as to how to record the transaction on your books.

The AICPA released guidance in its Technical Question and Answer (TQA) 3200.18 on how to record these loans. 

It may be recorded in one of two ways, either as debt or as a conditional grant.

Debt (FASB Accounting Standards Codification 470, Debt)

If you choose to record the funds as a loan, the amount is recorded on your books like any other loan, as a liability, and you accrue interest in accordance with the interest method under FASB ASC 835-30.  You would not impute any additional interest at a market rate because transactions, where interest rates are prescribed by governmental agencies, are excluded.  The liability is reduced when payments are made or when the loan is forgiven.  Any portion of the loan that is forgiven is recorded as revenue, as loan forgiveness.

Conditional Grant (International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance)

The AICPA guidance states that a nonprofit that expects to meet the PPP’s eligibility criteria and have the loan forgiven, may record the funds as a government grant.  Under this method, the grant income is not recognized until there is reasonable assurance that any conditions will be met.  If you choose this method, the funds are recorded as a refundable advance (liability) and you recognize the grant income once the conditions have been met.  To receive loan forgiveness, an organization must have used the funds for qualifying expenses and met the required salary level calculation.  There is no consensus as to when the conditions related to the PPP funding have been met.  Some believe they have been met when the organization has spent the funds on qualifying expenses and met the required salary level calculation, while others believe the conditions have not been met until the SBA has approved the loan forgiveness application.  The decision for when the conditions have been substantially met is up to the organization. 

It is the organization’s decision whether to record PPP funds as a loan or as a refundable advance.  You should; however, be sure to document the reasoning for your decision.

One other item to note, if your organization received both a PPP loan and an Economic Injury Disaster Loan (EIDL) advance, the PPP loan forgiveness amount is reduced by the amount of the EIDL advance. 

Posted by: Carrie Minnich, CPA