For-profit entities have many considerations regarding the Paycheck Protection Program (PPP) loan program, beyond who qualifies and how to apply for forgiveness. Once a loan is granted, there is the very real concern of how to account for it on your business entity’s financial statements.
The bad news is, there is no specific guidance under GAAP on accounting for this type of loan. The good news is that means there are options, depending on what makes the most sense for your organization. Below outlines four ways to consider accounting for your business’ PPP loan.
If you're unsure if you are going to apply for forgiveness, you can use the debt model under U.S. generally accepted accounting principles (GAAP), recognizing the money as a loan. In this scenario, you would account for the loan as a financial liability in accordance with FASB ASC 470, Debt. Since there is no interest for a six month period and the interest rate is prescribed by a government agency, the SBA, there is also no imputed interest calculation.
You also will want to refer to the guidance in ASC 470-50-15-4, Liabilities: Extinguishments of Liabilities, which says when a business entity pays off part or all of the loan, or when the loan is forgiven and the debtor has been legally released, the liability is then reduced by the amount forgiven, and a gain on extinguishment is recorded.
If your business expects to be eligible for loan forgiveness, concluding that the PPP loan represents, in essence, a grant, you may look to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, to account for the loan. As such:
If your business expects to be eligible for loan forgiveness, concluding that the PPP loan represents, in essence, a grant, the AICPA will allow you to use the guidance in ASC 958-605, Not-for-Profit Entities: Revenue Recognition. As such:
Read “3 Considerations for Nonprofit Accounting of PPP Loan Funds”
If your business expects to be eligible for loan forgiveness, concluding that the PPP loan represents, in essence, a grant, the AICPA will also allow you to use the guidance in ASC 450-30, Contingencies: Gain Contingencies. As such:
The PPP loan was intended to help businesses stay afloat during some very tumultuous times. For those who receive the assistance, it’s up to them to ensure they are accounting for it properly.
Contact Tina Dzik at firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
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