This article is about a government program related to COVID-19 that has ended. This article is still available to help employers that used Wave during that time find and understand their payroll records.
If you’ve received a Payroll Protection Program loan (PPP), here’s how to bookkeep it, from start to finish.
The PPP is a loan program offered through the Small Business Administration which is up to 100% forgivable, depending on how the funds are spent. And now your PPP loan has been approved: congratulations! Here’s how to record it.
You may want to open a separate bank account for the PPP loan deposit and spending, for the ease of tracking the loan funds when you later apply for forgiveness. If you keep your PPP loans in a separate bank account, you can pay all of your qualified expenses out of that bank account, and easily provide documentation to your lender when it comes time to apply for loan forgiveness.
This article explains how to account for the PPP loan deposit, interest, forgiveness, and repayment. Tracking your qualified expenses is a separate process. It's critical that you keep track of the expenses that you pay with your PPP loan. Be sure to check with your lender to learn what their documentation requirements are, as different lenders may have different standards.
To record the initial loan deposit:
- Under the Accounting tab in the left-hand navigation menu, select Chart of Accounts, then click the Add a New Account button.
- In the Account Type dropdown, scroll down to Liabilities & Credit Cards and select Loan and Line of Credit.
- Enter a name that you'll easily recognize (for example, "Local Credit Union PPP loan"). You can also include an account number and a description, if you'd like. Click Save.
- Now head to the Transactions page. Click Add income to create a transaction.
- For the Account, select the bank account the loan proceeds were deposited into.
- In the Category dropdown, select Transfer from Bank, Credit Card, or Loan, select the new PPP loan account you just added, and then click Save.
If you’ve connected your bank account to Wave, it will import the deposit transaction showing the loan funds in your account. Instead of creating a new transaction, you can simply categorize the imported transaction to your new loan account.
There are no payments due for the first six months, although interest will still accrue. That accrued interest will need to be repaid, even if the loan principal is forgiven, so let’s look at how to record that.
To record accrued interest:
- Head to Accounting and then Transactions; click Add expense.
- In the new expense transaction, enter the date, and enter a description (for example, “PPP loan accrued interest”).
- In the Account dropdown, select the PPP loan account.
- Enter the amount of accrued interest on the statement into the Total amount field.
- Open the Category dropdown and select Interest Expense.
- Click Save.
You’ll need a loan statement from your lender that shows the amount of interest that has accrued.
Once you’ve applied to have your loan forgiven and have received a confirmation from your lender, you can go ahead and ‘write off’ the amount of funds that you don’t have to pay back.
To write off the forgivable portion of the loan:
- Under the Accounting tab in the left-hand navigation menu, select Chart of Accounts, then click the Add a New Account button.
- In the Account Type dropdown, scroll down to Income; select Other Income.
- In the Account Name field, enter something specific (for example, “PPP loan forgiveness”) and click Save
- Head to Accounting and then Transactions; click Add income.
- Enter a description, choose the date, and enter the amount of the forgiveness in the Total amount field.
- Open the Account dropdown and select the PPP loan account.
- In the Category dropdown select the other income account created (example, “PPP loan forgiveness”).
- Click Save on the transaction details pane, and you’re done!
The forgiven amount of the loan is not taxable, so it’s important to keep this amount categorized separately from the revenue your business has earned. When it comes time to file your taxes, you or your accountant can deduct this amount from your total revenue.
Once you know how much of the loan and interest you need to pay back, you can record those payments in one of these ways.