Based on what we've seen so far, here's what we've been suggesting at Concordia Technology Solutions.
- Set up a liability account with a $0 balance. You can name this "PPP Loan" or something similar.
- Create a deposit to the bank account that's receiving the money, using the liability account as the offset.
In the event your PPP loan is fully or partially forgiven, take the following steps.
- For the amount that is forgiven, create a journal entry where you debit your PPP Liability Account and credit an income account. You may want to create one and name it "PPP Forgiveness". This will reduce the liability and increase the income, showing the forgiven portion of your loan as income.
- To pay back the remaining portion of your PPP loan, you can write checks against the liability, or create a journal entry where you debit your PPP liability and credit the asset account you're paying it off from. If the loan accrues interest, pay only the principal against the liability, the interest should be paid against an expense account.
Here's an example with some hypothetical numbers to illustrate:
- Your church receives the PPP loan for $10,000. You record receiving this money by creating a PPP liability account and then either a deposit or journal entry that debits your bank account $10,000 and credits the PPP liability account $10,000.
- Over the course of the 8 weeks, you spend $6,000 on payroll, pastoral housing, and other qualified expenses per the terms of the loan. You record those transactions as you would normally with checks/journal entries involving your bank account and the appropriate offset accounts for those items.
- At the end of the 8 weeks, you have $4,000 unspent that will be returned to the government. You record sending that money back with a check or a journal entry that credits your bank account in Shepherd's Staff $4,000 and debits the PPP liability account $4,000.
- Since the $6,000 already spent at that point is no longer a liability (it does not need to be paid back), you can record it as income. Create a journal entry that debits the PPP liability account $6,000 and credits the income account(s) of your choice $6,000. You can use memo/line item descriptions in the transaction to note that this income is due to the loan forgiveness.
For further accounting questions, we do recommend consulting your local financial professional for definitive answers.