Recording Forgiveness of the PPP Loan
PPP Loan Forgiveness How to record forgiveness on the PPP Loan in your books. The PPP Loan, or Paycheck Protection Program, was a federal loan
PPP Loan Forgiveness
How to record forgiveness on the PPP Loan in your books.
The PPP Loan, or Paycheck Protection Program, was a federal loan offered to employers as an incentive to keep employees on payroll through the pandemic. Many small businesses were able to apply for this loan, and have since been able to apply for PPP Loan forgiveness! Of course meaning that it does not need to be paid back!
When you received the PPP Loan you should have recorded the deposit to a liability account.
When your business first received this money you were unaware that it would be forgiven, and thus should have recorded it on your book as a loan (liability).
A liability is listed on the balance sheet, and notates an amount your company intends to pay.
Below is an example of what the balance sheet should look like with the PPP Loan listed as a liability.
Recording Forgiveness
When you receive forgiveness for the PPP Loan, it is a non-cash transaction. Which means no cash was actually exchanged, but there was a change to the way the amount of money should be held on your books.
You will have to make a journal entry to clear out the liability and offset owners equity.
If you have any sort of accounting background, you know it is very rare that you would ever journal into an equity account, and this loan/forgiveness is an exception.
Note:
Be sure to hold on to all your paperwork related to the PPP Loan. You will need it at tax time.
The Journal Entry should look like this;
Be sure to use the date the journal entry with the date on the forgiveness paperwork. Also, personally, I like to use the date as the Journal Entry Number, but that is just personal preference. You can use the number that QuickBooks Online autofills.
As you can see above, in my journal entry above I debit the PPP Loan account for the total amount of the forgiveness, and credit Members Draws.
How did the PPP Loan Forgiveness effect your Books?
Just a quick note; if you received the PPP forgiveness, you just collected free money! By this money moving from a Loan to Equity it was never recorded as income! And therefore was not taxable, even though you got to expense (reduce taxable income) with the money you used. That’s pretty awesome!
I know this pandemic has been rough on many businesses! But hopefully this money has helped you through this tough time!
If you are/were an employer during the pandemic, there is another cash tax credit you should be looking into, the Employee Retention Tax Credit REFUND. Click here to learn more.
Employee Retention Tax Credit
Find out if your business qualifies for the Employee Retention Tax Credit REFUND!
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