How to track Paycheck Protection Program funds and expenses

Business News | 8 May |

It’s not easy to navigate the changing tides of information on coronavirus relief loans such as the Paycheck Protection Program (PPP). But what do you do if you’ve received PPP funds? It’s essential to immediately start keeping detailed records of your expenses to avoid repaying the loan or any unused portions of it – even if the guidance around loan forgiveness is currently unclear. Keeping detailed track of expenses now will help you avoid future challenges.

Below are steps for recording Paycheck Protection Program (PPP) funds and expenses in QuickBooks Online. If you use another accounting system you’ll need to alter these steps accordingly.

1. Setup the PPP Loan Account on the Chart of Accounts

• This loan is a liability until it is determined how much of the loan will be forgiven.

• It’s recommended the account be a “Long Term Liability.”

2. Create the PPP Bank Account.

• It might not be possible to open a new bank account in a timely manner at this time. However, it’s important to create a separate bank account on the books to capture the PPP Loan and Expenses activity.

• Name the account “PPP Bank.”

Helen Swiatek is Customer Relations Manager for On the Money, LLC, a Phoenix-based firm specializing in small business accounting, bookkeeping management and profitability consulting.

3. Record the PPP Loan Income.

• Setup the Loan Vendor. If your lending institution is already a vendor, consider setting up the same vendor but with an extension such as “(Lending Institution) – PPP loan.”

• Deposit the Loan Funds

4. Record Expenses.       

• Use the regular Business Checking to pay expenses as normal.

• After payment, reimburse the Business Checking from the PPP Bank Account via the “Write Check” function.

• Do not combine payments and always include proper descriptions in the memo fields.

• Add attachments when available.

5. Create Reports.

• This method keeps a clean trail of PPP Income & Expenses, but will not show spending for the new PPP Bank by expense type.

• To obtain a spending report, you must create a custom report, but you might end up transposing this data to Excel for loan reporting purposes.

What Are Eligible PPP Expenses?

• Payroll costs, including benefits

• Interest on mortgage obligations, incurred before February 15, 2020

• Rent, under lease agreements in force before February 15, 2020

• Utilities (electric, gas, water, telephone and internet) for which service began before February 15, 2020

What Counts As Payroll Costs?

• Salary, wages, commissions or tips (capped at $100,000 on an annualized basis for each employee)

• Employee benefits including costs for vacation, parental, family, medical or sick leave, allowance for separation or dismissal, payments required for the provisions of group health care benefits including insurance premiums and payment of any retirement benefits

• State and local taxes assessed on compensation

• For a sole proprietor or independent contractor:  wages, commissions, income or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Other Points To Know About PPP

• Funds must be spent within eight weeks from the date received.

• Once an application is submitted, the business cannot delay receiving funds and the term of spending. For example, if a business has a seasonal business and submitted an application too soon.

• An application must be submitted for loan forgiveness.

• Funds not spent are considered the unforgiven portion of the loan. This amount has to be repaid.

• There is no federal tax liability on the forgiven loan. A determination is not known in regard to state tax liability.

• Can a business rehire new employees instead of bringing back staff that has been laid off? This has not been determined.

• Besides banks, there are other resources to apply for funding including Business2Credit, Fundera and Lendio.

Even if you have not received a loan, it’s important to track the cost of coronavirus for your business. Set up a line item in your accounting system to track the cost of coronavirus. This would include supplies for cleaning/maintenance, time spent (such as planning for remote work), IT costs, etc. In the future, if you apply for a loan or sell your business, there is going to be a “blip” in your history. By having this breakout, the financials can be easily recast to reflect business as it would have been without the virus.

 

Helen Swiatek is Customer Relations Manager for On the Money, LLC, a Phoenix-based firm specializing in small business accounting, bookkeeping management and profitability consulting. On the Money’s mission is to help small business owners take control of their finances by creating systems and tracking tools, then teaching them how to use those tools to make better-informed and more profitable money decisions.

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