What is the best way to record the forgiveness of a PPP loan. The loan was 100% forgiven and the entire amount was used for payroll.
Your original entry should have been DR Bank account and CR PPP Loan. You use up the funds, through DR Payroll Exp and CR Bank account. Your PPP loan is still listed on the books. Make a new Other Income account, called PPP Grant Forgiveness, (or XYZ Grant Forgiveness, or name of other grant). Now you need to reduce the Loan, so DR PPP Loan, and CR PPP Grant Forgiveness. End result, PPP Loan is zero, and Other Income shows as a credit on the TB.
I don't know how these will be dealt with on the tax return, but the info is all there now, for the CPA/Tax preparer to deal with.
Hope that helps.
Casey
@casey-4 I think that's where I'm confusing myself. I do the tax return and the bookkeeping. The initial loan is recorded correctly, I just kept debating myself on how to record the forgiveness. Guess it's just going to be an M-1 adjustment on the return. Thank you.
ahhh, i leave the tax work to others, so i just put things where they will see and understand them, and let them do their work. I am sure there is direction on this online, or on the IRS site, or ?
Not sure if the first posting attempt went through, so if this is duplicate, it can be deleted.
I do a nonprofit, but this should work for commercial also. The funds were treated as a restricted grant since they had to be spent on certain things, and would not have to be paid back if all the rules were followed.
When the PPP funds were received, it was entered as a deposit to checking account with the source account being the PPP loan account (a long term liability account) just like any other loan. A special customer was created for tracking expenditures, same as done with other restricted grants. A report by customer would then show the income and spending for the funds for use in any final lender report to bank or audit.
When the end of the fiscal year came on Aug 31, the bank was not yet accepting forgiveness applications, but since all funds were expended on payroll in FY2020 and it was assured the loan would be forgiven, I did a JE to move the funds from the long term liability account to a Govt Grant revenue account. This kept everything in the same fiscal year.
This was the method recommended by a pretty well known QuickBooks instructor
@casey-4 LOL ........or not. I doubt we'll get guidance until the middle of next year and I don't want to wait that long.
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