By Mark Banks, CPA, CFE, MAFF
The first hurdle was to apply and receive the Paycheck Protection Program (PPP) loan. The next step was to maximize loan forgiveness. Still, the work is not over.
Thankfully, the federal government recently loosened many of the regulations covering PPP loans to give businesses more flexibility to spend the money and to qualify for loan forgiveness.
Here are eight ways the federal government made it easier to use PPP loans and three recommendations for tracking how the funds are spent to help ensure maximum forgiveness.
It’s critical to properly maintain all appropriate documentation for all allowable PPP expenses. Documents may include the following:
Keep third-party documentation of expenditures, such as payroll vendor reports, bank statements, and utility bills. These documents are critical in confirming and verifying the financial information you create.
Keeping a separate accounting of the PPP funds helps you manage the funds and may assist the bank in reviewing your forgiveness application.
To keep an accurate set of accounting statements for the PPP loan, set up a few standard accounts and entries for the receipt, use, and forgiveness of the loan. Below is a list of journal entries that you and your entity may be able to use to allow for the accurate record keeping of the PPP proceeds.
Loan Proceeds Received
Note that we believe it is unnecessary to record a current portion of the loan at this time, as this amount is unknown.
When the PPP Funds Are Used
Note that this is only necessary if you create a separate bank account for the PPP loan funds.
Payment of Operating Expenses
Amount of Forgiveness Determined
Note that you must reclass the current portion after you identify the amortization amount/period.
Recording of Forgiveness – Delayed Until 13th Month
Unfortunately, there is no one single list of supporting documentation or best practices an entity can implement regarding PPP forgiveness. However, implementing the practices above can assist you with the tracking and management of the PPP loan throughout the coverage period.
Mark W. Banks, CPA, CFE, MAFF, is a member of Boyer & Ritter LLC’s COVID-19 task force and practices within the firm’s forensic, litigation, and consulting group. He can be reached at mbanks@cpabr.com.
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