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How To Track PPP Related Expenses

 

 

 

 

By: Teela McCullar

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, that was signed into law in March 2020. The legislation authorized the Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

According to the Treasury Department Paycheck Protection Program (PPP) Information Sheet, “loan amounts will be forgiven as long as the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week or 24-week period after the loan is made. With some exceptions, the loan amount is based on your average monthly payroll cost for 2019. You can receive 2.5 times that amount to help cover payroll. The funds from the PPP can be used for the following purposes: 

 

It is recommended to track your eligible payroll and non-payroll costs as you incur them. To maximize loan forgiveness, the key will be properly tracking costs. While tracking restricted funds is not new to many nonprofit organizations who often receive funds restricted by time, purpose, or amount – this concept may be new to for-profit businesses.

Below are a few suggested practices for recording Paycheck Protection Program (PPP) funds and expenses to ensure your company will avoid future challenges.

How to Record

A liability account should be created when recording the loan onto your books. Some banks require keeping the money you receive in a separate bank account, while others are discouraging it. If your bank does not require separating the money, consider depositing the funds into a savings account from which you can transfer the funds to your main checking account as the loan dollars are spent. This allows for easier tracking of the qualifying disbursements. While a separate account will assist you with tracking how much of funds are used, it is also important to track how funds are used. This may be difficult when using the bank account alone, given the limited level of detail that can accompany the transactions.

Create General Ledger Accounts

Consider creating sub general ledger expense accounts within your accounting system specific to the Paycheck Protection Program funds and utilization. The benefit of a general ledger sub-account is that it maintains all documentation in your accounting system and reduces the possibility of manual errors.

Utilize a Manual Spreadsheet

To track funds using a spreadsheet, enter your loan proceeds balance and subtract each qualifying disbursement. Be sure to include details about the disbursements in the spreadsheet, so that you are tracking both how and how much of the funds are being used.

While manual entry and tracking is time-consuming and potentially inefficient, the benefit of using a spreadsheet is that as more guidance is provided, you can make adjustments easily, adding or deleting expenses. There is also no limit of the amount of information you can include in a spreadsheet, allowing you to keep as much detail as you want regarding the expenses. You can also use a formula to track how much of your fund utilization is for payroll and how much to cover non-payroll costs.

On the surface, the guidelines for obtaining full forgiveness from your lender are straightforward. However, due to the everchanging information and instructions continuously being announced, it’s imperative to track your expenses to ensure your PPP loan will be forgiven.

If you have any questions regarding the PPP, tracking expenses or general accounting questions, please call the professionals of Barnard Vogler & Co., at 775.786.6141 or visit our contact form on our website, http://bvcocpas.com/contact-us/.






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