Updated: Aug 3
Now, we hope that you have received PPP funds to support the business. It is time to think about what you should do after receiving the money. In this article, we will not go over who is eligible for this loan or how to apply this. Instead, we investigate the method of tracking the PPP funds in the QuickBooks Software.
Before dealing with the amount, make sure you get the nature of the PPP fund. Paycheck Protection Program is a loan designed by SBA to support small businesses to keep their workers being paid. In short, it should be considered and recorded as a Payable liability. However, this is a loan that could be forgiven in the future if it can pass requirements. Under GAAP, this amount could be derecognized when you have the official notice of the forgiveness for this loan from your lender. At that time, we can derecognize this amount as income.
In this article, we deal with 3 methods. With the same scenario but in different ways including setting up a new separate bank account for PPP loan, or not. Let’s go through both situations.
Scenario: Your company has received $100,000 under the PPP funds. The amount was gone into the main checking account. Now, you would like to find a way to track this amount in their QuickBooks software.
Method 1: Setting up a new banking account for PPP funds only
This method does not require you to open a real separate bank account. So, do not consider about bank fees for your new bank account. In case you want to track your loan by this method, follow the instruction below:
Step 1: Set up a loan account as PPP Loan. This is a payable loan, so make sure you create a current or long-term liability account.
Step 2: Create a bank account and renamed as “PPP Fund” for easy tracking.
Step 3: Update your company data file with the “PPP amount” that goes to the new liability account. The PPP amount will be shown in your Balance Sheet when you are done.
Step 4: Whenever you make an expense, do 2 transactions:
+ the first transaction is the transfer from your main account to PPP fun account.
+ second one is to record the money out for PPP expenses.
Example: You need to pay a utility bill during the covered period for $152.89. First, go ahead and deposit $152.89 from the main account to PPP account. Then, write a check to pay $152.89, the account for this amount now can be Utility.
Reporting: the total PPP amount will be in your Balance Sheet and under your liability. In the meanwhile, all expenses will be in your Profit and Loss and categorized separately into suitable accounts.
Method 2: Using the Class feature in QuickBooks
We are so glad to say that you can use the Class feature in QuickBooks to track all transactions relating to PPP loans. Let’s go through the steps below:
Step 1: Make sure you have set up a liability account for PPP loan and record the PPP fund into this account. In case you do not remember how to deal with this, review the previous method.
Step 2: When using this method, you track all expenses in the main account (the one that received the PPP loan). Therefore, it is necessary to separate transactions. To use the Class feature, make sure you turn on the Class feature. Navigate the List menu then choose the Preference to open the Preference menu. Turn on the Class Feature if needed.
Step 3: After checking the Class feature, create a class as PPP loan.
Step 4: Whenever record the transactions that could be paid by PPP fund, just need to choose the Class column as PPP Loan.
Reporting: You can generate both Balance Sheet and Profit and Loss reports by Class to see all your transactions which were classified in PPP Loan Class.
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Method 3: Make General Entries record all your expenses that were paid by PPP loan
In this method, you do not need to either set up a bank account or check your Class feature. In case you would like to track your expenses by this method, follow the instruction below:
Step 1: The first step of every method should be creating a new liability account to record the PPP loan amount.
Step 2: during the eight weeks, all expenses were paid and should be recorded into your data file.
Step 3: Open the company file, then choose the Company, then select “Make General Journal Entries”.
Step 4: Fill in all required field.
+ Bank account: the account that is received the PPP loan.
+ The first line, the account could be your new "PPP Loan" account and enter the amount of the loan in the Credit column.
+ Other lines are used to record the money OUT, choose the suitable expense account and fill in the figure under the Debit column.
Step 5: After the period, hopefully, the balance in your general entries is equal.
Now, when your loan amount is accepted as a forgiven loan, what should you do next? When you have received the official notice of forgiveness, open your book and derecognize your loan amount. You can generate your Balance Sheet to see your liability account and the PPP loan amount. Then, go ahead and change the account from the Liability account to the Income account.
When you have done this step, congratulate that you go over this specifically difficult period and maintain your business.
In this difficult time, things are changing daily, and it is really hard to stay above all the news. Before finishing reading, there are some points that you should put a note and make attention on :
PPP Funds must be spent within 8 weeks since the date you received the amount.
If the fund is not spent for proper costs or over the portion, you need to pay back the over amount.
Even if you have not received the PPP loan, it is important to keep track of all your expenses during the period of coronavirus as well as the cost for your business. It could be helpful when you apply for other loan programs.
We hope that you find these suggestions and ideas useful. In case you are not confident about tracking this amount, stay alert to additional guidance, and get someone professional to help you.
If you need advice or services on any aspect of bookkeeping, accounting and tax, our specialists are ready to help. Get in touch with us for free quote.