[US] COVID-19: How to bookkeep your PPP loan

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.

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:

  1. Under the Accounting tab in the left-hand navigation menu, select Chart of Accounts, then click the Add a New Account button.
  2. In the Account Type dropdown, scroll down to Liabilities & Credit Cards and select Loan and Line of Credit.
  3. 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.
  4. Now head to the Transactions page. Click Add income to create a transaction.
  5. For the Account, select the bank account the loan proceeds were deposited into.
  6. 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:

  1. Head to Accounting and then Transactions; click Add expense.
  2. In the new expense transaction, enter the date, and enter a description (for example, “PPP loan accrued interest”).
  3. In the Account dropdown, select the PPP loan account.
  4. Enter the amount of accrued interest on the statement into the Total amount field.
  5. Open the Category dropdown and select Interest Expense.
  6. 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:

  1. Head to Accounting and then Transactions; click Add income.
  2. Enter a description, choose the date, and enter the amount of the forgiveness in the Total amount field.
  3. Open the Account dropdown and select the PPP loan account.
  4. In the Category dropdown, scroll down to click Add a new account.
  5. In the screen that pops up, open the Account Type dropdown and scroll down to Income; select Other Income.
  6. In the Account Name field, enter something specific (for example, “PPP loan forgiveness”).
  7. Click Save, and the transaction will be categorized to this new account.
  8. 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.

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.

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.

Recording interest and loan payments:

If you're paying interest you've already accrued, and/or loan principal

  1. Head to Accounting and then Transactions; either find the payment transaction imported from your bank account connection, or click Add expense.
  2. In the transaction details, enter or verify the account the payment was made from, the date, and the amount of the payment.
  3. In the Category dropdown, select the PPP loan account.
  4. Click Save.

If you're paying interest that hasn't been accrued

  1. Head to Accounting and then Transactions; either find the payment transaction imported from your bank account connection, or click Add expense.
  2. In the transaction details, enter or verify the account the payment was made from, the date, and the amount of the payment.
  3. In the Category dropdown, select Interest Expense.
  4. Click Save.

If you're paying principal and interest together as a regular loan installment payment

  1. Head to the Transactions page. Click Add expense, enter the bank account for the payment with the Account dropdown, select the Date of the payment, and enter the payment amount into the Total amount box. Or, find the imported expense transaction in the bank account, and select it to open the transaction details pane.
  2. Below the Category dropdown, click the Split this withdrawal button.
  3. In the Category 1 dropdown menu, select the PPP loan account, and enter the principal payment amount into the Amount box.
  4. In the Category 2 dropdown menu, select Interest Expense, and enter the interest amount into the Amount box.
  5. Click Save, and you're done!

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