PPP Loan – How Do I Capture in QuickBooks?
Odds are you have heard lots of buzz lately about the Paycheck Protection Program, or PPP loan, from the Small Business Association. If you are/were a small business that has applied and received confirmation of the loan, you need to ensure that you are capturing the loan properly in your bookkeeping process. The hard part was getting approved for the loan, now the easy part is letting us help you capture the data to prove the forgivability of the loan.
Step 1: Create a separate PPO Loan Banking Account.
TIP: A separate account allows you to easily audit your PPP funds for eligible expenses and will help with the forgiveness process.
Step 2: Setting up the Loan in QuickBooks.
TIP: Your PPP loan is NOT free income. Let me repeat, this is not free income and should not be entered as income/sales in QuickBooks. The loan is a liability until you determine how much of the loan will be forgiven. If you use QuickBooks, we suggest turning on class tracking. Class tracking allows your bookkeeper to enter transactions under the proper loan name. Reports can be generated to assist with tracking.
Step 3: Naming the Loan
TIP: You need to name the loan properly. The name should include the institution that you borrowed the loan from. For example, “PPP Loan - First Citizens Bank – Debit.”
Step 4: Determining when the PPP loan is expected to be paid off.
TIP: If you anticipate the loan will take longer than one year to pay off (assume you are responsible for the whole loan), this will be categorized as a “Current Liability”. If the loan will take longer than a year to pay off, this will be categorized as a “Long Term Liability” **MOST COMMON FOR SMALL BUSINESSES. **
Step 5: Do not change the loan entry, until the forgiveness process starts.
TIP: As of July 15, 2020, we have not heard when this will occur, however we believe it will begin soon.
Step 6: Deposit Loan Funds.
TIP: Before you pay an expense from your business checking account (note the expense needs to fall under the PPP requirements in order to be forgivable), make a transfer from your PPP Loan Banking Account to your typical business banking account. Continue these transfers until you use up all the PPP loan funds, as needed. Make sure to keep all expenses entered separately as to not create any questions for auditing. Do not combine monthly expenses under one entry (Ie. Payroll – one entry. Rent – one entry. Utilities – one entry.). This will ensure that your loan deposits stay organized.
Step 7: Pay Expenses.
TIP: As you make payments that qualify for forgiveness, note your entry as “PPP Loan Payment – Rent July 2020 – Credit”. You can pay for expenses that are not covered by the PPP Loan with the funds, however, just know those expenses will not be forgiven. These need to be flagged in your QuickBook entries.
Step 8: Consider the leftovers.
TIP: What do you do with leftover funds after paying your approved expenses? You can either pay back the remaining loan or use the rest of the funds as a low-interest loan.
Step 9: Stay on top of your books.
As more and more information is delivered from the government on the process for the PPP loan forgiveness process, we highly suggest you work with your Bookkeeper and/or Accountant to ensure you have all necessary documentation.
TIP: Do not let a lack of documentation and proper bookkeeping delay and/or inhibit your loan from being approved for forgiveness.
Interested in learning more about ShoreSource Business Solutions, LLC? Feel free to reach us at 843.729.2961 or info@shoresourcebiz.com.
